From the screenshot you posted, it looks like you're typing ARENA and calling a batch file called ARENA.BAT, which in turn tries to launch executable called ACD.EXE but cannot find it.

You can open ARENA.BAT in a text editor and see where the ACD.EXE file is suppsoed to be located, but I'm assuming that the game looks for it on the CD.

Did you install the game from an actual CD, or is it the copy from GOG/Steam? You need to have the CD mounted at all times, I think the game does not install anything on the HDD save for the configuration file and saved games.

The Arena installer on the CD doesn't copy over any game files, just some batch and configuration files.
Since it doesn't copy any files then that means the ACD.EXE in the batch file remains on the CD and if you "install" from your hard drive instead of the CD then the batch doesn't know where the executable is at.
You can:

Use:
mount c c:\GAMES
mount d path -t cdrom (or imgmount)
Install from the d: drive
go to C:\Arena_CD and launch the game.
Put the above mount commands in your .conf/frontend

There might be a CD crack out there somewhere so you don't need to mount the CD.