Arcing: don't worry about it. The box is rated for 300W, so there is no safety issue. The arc can only happen when there is signal going through it. If you switch when there is a 20V signal then it will arc. There can be no arc in the relay if you stop the signal before switching.
But over time, it does tend to get switched with a signal, so the relay contacts can build up some pitting, which increase resistance further and degrades the sound quality. Most DIY speaker switchers use relays that are not rated to SWITCH the kind of voltage that blind AB comparisons demand. They can carry, but not switch. The Niles user manual should make a recommendation on proper use and probably has very tough relays.
A simple, incomplete explanation is that damping factor is the ratio of load impedance (aka input impedance) to source impedance (aka output impedance.) 8 ohm speaker, 0.01ohm amp, makes damping factor of 800. 4 ohms speaker and 2 ohms tube amp makes damping factor of 2, big difference, and this partly explains why the sound is so different, but there is a lot more to the story. For now, think higher damping enhances control of the source over the load in equipment designed to work that way, which is 99.999% of all commercial gear. This is called voltage drive, and here electrical damping is very important. Tighter bass, clearer treble, etc. There are drawbacks to this ubiquitous system, but let's save that (current drive and zero damping) for another thread. So back on topic... when you add resistive elements to the circuit, like relay contacts in the Niles switch, or binding posts for the extra length of speaker wire, you are reducing the damping factor between amp and speaker because the source impedance is no longer 0.01ohms, it is 0.01 ohms plus the added resistance of the temporary contacts. Non-soldered contacts always add resistance. The sound quality will change to reflect the added source resistance (impedance.) Same as if you added a resistor to your speaker cables or left the posts loose. This is why you sometimes see wise reviewers and other commentators ridicule the extreme low output impedance specs of class D amplifiers, 0.0001ohms, etc. Once you connect them to a real circuit the output impedance is immediately multiplied hundred of times. But people like the sound of digital amps for precisely this reason, of invincible control top to bottom due to the very high damping factor. Some people don't like it, they prefer lower damping and tube amps. "High-end" wires and connectors with very low resistance, silver contact enhancers, solid copper binding posts, rhodium plating to prevent oxidation, they are all for reducing resistance and increasing damping factor.
Experiment with the switch in and out of the circuit, you will hear difference and decide for yourself if it's worth the loss of damping. But infinite damping is not "Teh Answer(tm)"... People choose tube amps for good reason, many people like less damping. For HT high damping is good for scary transients and LF tonal texture, but for beautiful lady vocals and late night piano sonatas, less damping can be very nice. Choose your poison. Somewhere in the middle is where most of us land, or like rollo says, use two amps. Hey guess what, you got two amps!
"I Like it" is the best reason to keep the Sumo!
Don't let me discourage you from having fun trying DIY speaker cables with the belden alarm wire. You have a gut about it, so follow it. I use 40 foot 16/2 speaker wire to my patio speakers and it is very satisfying, I think due to the lower damping factor of the long thin wires. Price is right so give it a try! I am a bit of a wire snob since hometheaterdoc ruined me with expensive wire
so you have to take my rants with a grain of salt, it's just opinion. Let us know how it works out.
One thing you could do to reduce the resistance of the belden due to the thin wire, is combining several lengths of the belden together in parallel. 4 lengths combined into one cable, tying all the + together and all the - together to make the gage bigger. Braiding them supposedly benefits things too, although I don't know what braid is good or if worth the effort but it forms a rope that's easier to route. With 4 lengths in parallel you have 4 times less resistance. Just make sure you keep the pos and negs separate.
See ya sleepy
Rich