Arc Incorrectly Reporting Server Needs Update (ref#945O05) [actually correctly]

The server version in production is build 1401, which you have.

ARC in production is 1.0.50 (build 261):

ARC in Early Access / Beta is build 264, which seems to be what you have (as I made bold in your quote above):

So seems that you are trying to use ARC beta with a production server and hence you get the prompt to update your server.

The alternative is, of course, to revert your ARC to the production version.