Arcing behaves much like lighting, the arc will initiate at the point of least resistance, essentially the lighting rod of the point of contact. By sanding the top of your battery you've exchanged one lighting rod for dozens (or hundreds?).
You can not stop arcing
...all that sanding and noalox will accomplish is to create many smaller arcs making them harder to see, further hidden them with a smear of noalox...and added a bunch of resistance to the circuit by removing a ton of contact surface area. If you really must "sand" the tops of your batts, buy a couple sheets of 1000 grit (it'll last you a lifetime)
I've got 15+ years experience as an industrial controls electrician and have repaired a ".... ton" of contacts, believe me when I say, arcing, although looks disconcerting, is nothing to be concerned about...Rob's new contacts are a really good design imo, although, the elegantly simple design of the Grand, Mini and Mini 2.1 exposes it's self to a variable that Rob has no control over, the other half of the electrical contact...or, the condition of your batt top caps. In the electrical world, contacts are "paired". One method to fix paired contacts is to slide a very thin strip with a "very" fine abrasion coating between the contact points, manually press them together (sandwiching the contact cleaner) then repeatedly slide the cleaner out...this marries the contact surfaces, creating maximum surface area.
Rob solved this issue of not being able to pair contacts by giving the old contact a "point" to deal with the variable he had no control over, what else could he do? Unfortunately it had a very small surface area and prone to heat damage from the higher and higher currents we were driving through it...you all recall that by sanding what you thought was the oxidization off the "point" you got better performance, less arcing?...that's because you where actually increasing the contact surface area...it's a thin edge so sanding wasn't a big deal, but sanding the flat surface of your batts?...very bad idea.
Along comes the S/O contact...cause we demanded it...along with our demands come some caveats that we will just have to deal with...
Because Rob couldn't possibly invent a contact that could carry much higher current and "marry" to thousands of batts, arcing has become an issue (it's actually not an issue but...) I've been thinking of how could we get back the adaptability of a pointed contact and keep the great new surface area we've been given?...my thoughts are the button base that drives the contact down onto the batt is currently flat and unforgiving...what if it were slightly hemispherical? A hemispherical surface would better allow the flat edge of the contact to roll one way or the other to better align with our invariably bent/concaved/dented battery tops giving the most surface area possible to the contact point. Not for an instant am I questioning the design, it's just an observation.
Understandably, a hemispherical button surface would be a pain to machine (and add to costs)... but you could do this yourself quite easily...by dropping a small blob of 2 part epoxy on the end that presses the contact down and let it cure in a nice 1mm thick rounded hump...this may allow the contact to conform to the many variations of battery tops ...