I don't know about closed arena matches, but the two ideas I currently like is to improve the formula a lot more from PH and add leaderboards, and add a second feature playing 10-15 online minigames as ZantDarksage pointed out would make a great wiiware title. I do agree maybe this should be a wiiware title on its own. As far as the PH style improvents, I do not want it to be first person, but to be in full body form. That way you know whats happening around you. I don't want Link's mug all over master chief. It should be kinda different.
Stop! It Burns!(Funny!)
No way it be with guns or greandes, but it would be with typical zelda technology like bombs or arrows. Graphics would not be like that either. I think it can be done if nintendo does it right.