So Arnold claims that the pursuit of a "best self" is the only end? Maybe I'm misunderstanding, but I wouldn't agree with this at all. I tend to agree with Mill on what things are ends. I think that the pursuit of a "best self" is a means to happiness. Becoming a "better" person makes us happier, which is why we would tend to do it when possible.
In retrospect, it seems I'm jumping a bit off topic. Maybe I'm misunderstanding. Please cut me off if I am so we can continue getting at what you're intending to discuss.
I think I agree with your denunciation of the sanctity of liberty, after thinking about it. If a liberty is making the whole more miserable than if it weren't present, and if it would continue to make people miserable for a long time, then I don't think it should be a liberty.