My answer is a question. Why are you having the TV control the system rather than the receiver, which is designed and intended to control the system? As in, the receiver is designed to have everything connected to it and do the switching.
That's how I'd done it previous optical only systems, so easier for my wife to understand. The receiver is not visible from the sitting area. Probably not enough room to hide the many HDMI cables under the skirting board.
ARC tries to work, does anyone know the reasons for the audio dropouts in this configuration?