It does suck rather horribly. I can't imagine it would be an intentional design thing to not reward anyone in the Arena.

Another idea I had was that maybe the game has a cut-off point for experience gained from entering the arena. It might stop giving you xp from when you get to level 10 for instance and from then on, it might just add the xp to what's required to level up. So maybe the arena is just meant to reward early level parties...
As strange and implausible as that sounds, its the best theory I have apart from it just being a bug!

Thanks for the tips too St Germaine - I'll keep an eye out for F2 when I get there!