So changing the emacs mode has no effect on an existing buffer, but changing the file name does. I guess there's something about a .arc extension that turns off copy/paste from emacs.
edit: another datapoint - everything works fine when running emacs w/o X via: emacs -nw arc.arc
While experimenting, I received the following error after entering the following from the command line:
"File mode specification error: (error "Autoloading failed to define function archive-mode")