Ok. There are a lot of people with this same problem.
The arcsetup.exe file is used for booting an IDE drive, apparently, specifically in a dual-boot scenario. Does your laptop have 2 drive partitions on it? One partition for Win2KPro and maybe one for Dell to use with a recovery cd loaded on it? I bet there is, with this file being there.
Unfortunately, I don't have a specific fix for this. Did you try booting into Safe Mode, then run SP4? You can run a service pack upgrade from Safe Mode.
The arcsetup.exe file is updated by SP4 (and SP3, from what I read) and in your case, it is used by your laptop. It can't replace the file, and so that is why the error.
I am not really sure what to suggest, if Safe Mode does not work. Maybe you could try booting to the Recovery Console, and install the service pack from there. I have read (but never tried!) that you can install a service pack from the Recovery Console, but it is not a normal install, obviously, since there is no GUI.
Good luck