I believe giving the option to unlock all arms in friend/local mode is a necessity for a successful competitive scene. The process of unlocking arms is far too random and time consuming for potential tournament runners to accomplish in time for a competition and restricting players to the default arms of a particular character severely limits the variety of play styles a player can adopt and use. This also creates balancing issues forcing players to only play specific characters.

Any restrictions that a competitive scene may have should be primarily decided by the community around it not by the game itself.