The problem of source-is-the-spec approach is that it tends to overspecify things. Especially it is difficult to represent something is "unspecified" in the form of the source code.
What's the benefit of not specifying something in the specification? It leaves a room for different implementation strategies, each of which is specialized for certain situations. It allows putting off design decisions when there's not enough experience to decide which choice is better. It can warn the user that the existing choice is purely arbitrary and it may be changed when circumstances change (note: the big point is that, a concrete implementation has to choose one, even when from the specification point of view the choice doesn't matter.)
For example, Arc's current map is restart-safe for list arguments but restart-unsafe for string arguments (restart-safe means, if you evaluate (map f xs), and a continuation is captured within f, and later the continuation is restarted and the restart doesn't affect the result of the previous return value of map.) Is it a part of "spec" so that one can rely on that exact behavior? Can I rely on that the restart actually modifies the string returned from the first call? Or is it just an arbitrary implementation choice and one should assume the result of mixing map and call/cc is unspecified?
(BTW: In R5RS Scheme it was unspecified. In R6RS Scheme it is explicitly specified that map must be restart safe.)
I think, having a prose spec that leaves things unspecified may not be particularly useful in Arc's case; unspecified behaviour in a prose spec is difficult to automatically test for.
Generally, the benefit of a prose, incomplete spec, to program writers, would be compatibility to an abundance of implementations (in either space or time). It helps program writers approach any number of implementers, without actually meeting any particular one. But to make this happen both must read and follow the spec. This is hard on the program writer in particular; he can't automatically test for a spec in the prose, he must read the spec and test his program with an abundance of implementations.
Will Arc's target audience follow a prose spec? Will anyone?