Arsenio was being haunted by the fire spirit. He was very stressed about it, doubting himself. It was really hard, particularly because no one else around him could see or hear the thing. He might have gone insane if not for Rico being there, helping him repelling the fire spirit. Arsenio also stated this to Rico, that he's grateful that Rico could also see the thing and help him deal with it. After a period of this situation, it seemd that Arsenio had resolved his internal conflict, resulting in him able to make a chaneling tool - a small paper cutting knife, which he brought to Sauro to test.
Everything seemed fine now. The fire spirit still made Arsenio feel uneasy, though he's no longer doubting himself. Unfortunately, Rico's latest attempt at discouraging the thing made it run away to possess some criminal at the other side of the castle. I don't really know what's the different between this guy and Arsenio (probably the criminal's soul & heart was not "warm" - as Sam was commenting about Arsenio?), but apparently the possession resulting in the criminal himself turned into a moving torch, which caused burning of the castle. The spirit somehow wanted Rico to fix it, so it's looking for Rico. Meanwhile, the people in the castle was evacuated. Rico's owner was throwing a tantrum to have people looking for her cat - she's not really that concern for Rico himself, but more like he's her possession, and she's the daughter of the ruling lord, and each and every needs and wants of hers had to be attended to. Arsenio heard about Rico still being inside the castle so he rushed in there. The girl seemed to mistake his action that he's doing it for her sake (and not simply because Arsenio cared for Rico). Rico was really touched when Arsenio came looking for him. He knew his owner not caring for him much, and his time with Arsenio was nothing very special. Rico able to see the fire spirit - in any other circumstances - might have scared Arsenio, as that would be proof he's some kind of magical creature, which according to the religious teaching had to be destroyed. Yet Arsenio still risked the fire and the possible persecution if Rico being a monster being found out. So Rico resolved himself, and actually revealing his ability, fighting with the possessed man. Just when the fight came to an end, a knight appearing finishing the blow (Sauro met this knight during the witch's event, and the knight seemed to take a liking to Sauro, hinting he might help recommending Sauro becoming a knight). When the knight started on Rico, Arsenio tried to say Rico was actually helping, the knight ignored the helping part, only focusing on "are you colluding with monsters?". Rico wanting to protect Arsenio of the accusation, fired his magic in an attempt at faking attack (a reference to what Arsenio did when Sauro was asking Rei and Lloyd if they were at King Bull's castle helping the monsters). Rico was killed, and the knight more or less ignored Arsenio. Everything seemd to be fine. Right? Right??
Right after the event, the owner of Rico, the girl came to, seemingly, comforting Arsenio. She was saying "there's no need to feel bad about the cat, it's a monster anyway, it's good that it's dead; now let's talk about how you were so willing to go into the fire, must be because you're in love with me" etc. Fine, she's a heartless, spoiled, entitled brat. But after Arsenio rejected her and called her out for being heartless, spoiled, entitled, she was thinking of how she could not let others know about her "failure" of being rejected. I'm quite certain (even though it was not shown exactly) that it was her that make the accusation that caused Arsenio to be arrested.
As for the torturing, it was done by the guy that punched Sauro when Arsenio and Sauro first met. Remembered? His girlfriend dumped him after being seduced by Sauro, or more likely, Sauro showed interested, and she herself decided she wanted a dip at the new hot guy. Apparently this guy - the torturer - who had a grudge with Sauro hold the grudge for 4 whole years, and it's more severe now as the knight commender (the guy who killed Rico) seemed interesed in making Sauro a knight. So the torturer (NOT exorciser - he's not doing anything to expel the spirit, his job was to get a confession out of the accused) wanted Arsenio to make a false confession that Sauro was also colluding with a demon, so that the torturer had reason to ruin Sauro. But Arsenio refused. In his word Sauro might have playing with women's feeling, but it's not so horrible as to be falsely accused of making a deal with demon. Furthermore, Sauro truly worked hard as a soldier fighting monster to protect the city. So the torturing continued, mixed with psychological attacks from the torturer. The burning at the stake was when Arsenio accepted the fire spirit help (Sauro showed a protective and jealous side here when he saw the condition Arsenio was in). But the final chapter was much more emotional in my opinion. Especially when Arsenio escaped from the city, and he realized that he lost his family now, and he was relating this to the feeling of Sauro.
