What is the Xbox 360 Arcade Console what is the difference?

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Xbox arcade is the "lowest" type of xbox 360. it can play only xbox games and comes with no hard drive if I'm correct. Step would be the regular xbox360 which can play all 360 games and some xbox games. Finally there is the xbox 360 elite which is the top of the line. Which has 150 Gb hard dive and can play all 360 games aswell as all xbox games.
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I'm sorry, but I believe you've made an error. The Arcade lacks (out of the box) a HDD. However, you can buy a HDD to attach to it. Otherwise, it is no less capable than an Elite or Pro sku.

I have a Jasper Arcade
-XBLA downloads? check
-360 games like Street Fighter 4 and Tales of Vesperia? Check
-Netflix and all of those extras? check
-limited backwards compatibility (no more limited than with an Elite or Pro)? check

I don't know if this is still the case, but for a time, you could barely (if at all) find a Jasper 360 in anything but an Arcade. If you wanted the "better built" 360, it made sense to get an Arcade Jasper and buy a HDD of your preference. Jasper 360 Pros and Elites may now be available.
 

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