No, the arcade directory needs to be 777. That gives access to play the games. You do that by going into your FTP server, selecting arcade, right mouse clicking and the picking "properties." At the "Permissions" section, you can either type in "777" or click all of the "read, write, execute" files under User, Group, and Others boxes...
That doesn't explain why you're not seeing the Arcade tab in your AdminCP though...again, make sure you've uploaded the XML product through Manage Plugins...
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