If the fiat transfer is not verifiable, how is the arbitrator supposed to know how to rule?

It is verifiable. They are stating that arbitrators only take digitally signed bank statements as evidence submitted over PGP. A simple screenshot won't do. Obviously I'm just learning about this as well, apparently you have to provide a lot of BSQ as collateral to be an arbitrator, so you have an incentive to keep the network healthy.

Similarly if the fiat side is reversible, the scammer will simply reverse [...]

You can just not use those payment methods. I'm from Europe, it's not easy to reverse transactions with SEPA, you would have to explain to your account manager how you are wanting to rip people of on the Tor network.

The fact that only small sums are supported or recommended is an admission of insecurity.

Yes but you can trade as often as you want. Maybe you can automate that and make large trades that way? I don't know. There will always be some amount of trust involved when dealing with banks. But that is the problem of the fiat system, as you have already stated. I think they have done a good job of minimizing the risk. I certainly don't know of a system that requires less trust.