At this point I'm speculating, but, I believe you NEED to give them all an order. Don't just leave them with no order.
If you just want everyone random, add this after each name:
,, order=1
So for example you'd have: Gouki,, order=1
(be sure to have two commas after his name like I do) Do that for every character you want to randomly fight in Arcade mode. Then, if you have bosses, just have them be order=2. If you want to leave anybody out, give them order=0 which forces them to be ignored.
Also, can you confirm that when you look in your stages folder not a SINGLE file has a space in it? In my experience, even one stage file with a space in the name can cause the arcade mode to go crazy and give the same problems you're experiencing.