1.06 is the (free) floppy version, while 1.07 is the CD version (available on GOG). To my knowledge 1.07 contains additional sound / voice files, but gameplay-wise it's the same as 1.06.

I also don't notice any difference today when changing the detail level (including game speed). But I think I remember that there was a difference in the past when I played Arena on a native DOS PC which was barely above the minimum specs. That there is no difference when playing Arena on modern PC's might be simply a consequence of their higher CPU or GPU power, or of the DOSBOX configuration.

It does increase view distance. Very noticeable during a town in daylight, notsomuch in dungeons or at night. Also, as far as game being slower, you can fix that (if you want) by increasing the "cycles" value in the dosbox .conf file. I use Ctrl+F11/Ctrl+F12 to slow down game speed during combat, but speed it up otherwise, as it feels much smoother.