Re-reading, I don't know how I missed that the first line of output is a 'progn statement. Obviously arc will barf on it. I don't know what won't work because SLIME wasn't able to load 'swank and start it.
What makes you say that? What features would you consider "make it worth using", and why won't they work? It's quite possible that all that needs to be done is change a few variables or replace a few functions to use arc names instead of CL names. Case in point being progn -> do, etc.
swank is the lisp package that does all of the slime heavy lifting on the lisp runtime. It manages threads, executes code, interfaces with the debugger, does various reference/definition lookups, etc. It consists of a large CL package with a smaller, environment specific set of functions that are defined for each lisp environment (SBCL, Clozure, etc.) In addition, slime and swank are tightly bound, and changes to one requires changes to the other. One or the other change fairly frequently. Porting swank to work with something like ARC would be a major undertaking, maintaining it would probably be worse. It's probably not worth the effort. It would probably be just as fast to create a new arc editing interface.