I understand that the image quality of Arena is pixelated on modern machines but it is really bad on my old Dell Inspiron and I am asking if there is any way to clear it up a little. Otherwise, the game works well. Thanks for your help.

Thank you, I will try your solution.

Unfortunately, the effect is not quite as good as when applying the same trick to Daggerfall (but then the graphics of Arena are smoother than those of Daggerfall - on my PC at least).
You could also try setting fullresolution to your monitor resolution and output to opengl or ddraw (a recommendation from the ArenaSetup site). Like I said, these settings do improve the Daggerfall graphics quite nicely, but not so much the Arena graphics.

Changing to 2xsai helped a little. At least I am able to read the alert words that come up. I will try your added suggestions. I am an old lady that loves games but not too good at fixing them so I really appreciate your help.

Just ask, the old man will try to help you. :-)

Thanks, it is always wise to depend on the wisdom of the aged. :-)

Looks so much better in windowed mode I play mine at 800x600.

What was native resolution of TES: Arena?
I am unable to obtain more than 1024x768 fullscreen resolution and yes, I think it is better looking when windowed.

Well, Arena was released in 1994, requirements were DOS, 33 MHz and 4 MB RAM. At that time, most monitors were 14" or at most 15", perhaps some 17", and these monitors were supporting 1024x768 resolutions (and the graphics were analogue, which results in better graphics on those old analogue monitors). The native resolution of Arena was definitely not higher than 1024x768, I wouldn't be suprised if it was actually lower (800x600 or even 640x480).
If you run Arena on a modern 20-odd inch monitor and in a non-4:3 format, you know that the conversion from the original to your actual format will result either in interpolated or pixellated images, and they will be distorted, too (not to mention the high hardware demand for all the ongoing reformatting and stretching).
This means, if you want to see Arena as it was in 1994 (and you don't have an old DOS PC with an old monitor), you ought to run it in 1024x768 or 800x600 windowed, and make sure that the size of the game window is 14" or 15". This leaves a lot of unused space on a modern monitor, but this can't be helped if you want to play Arena in this way. And it still doesn't make your new digital monitor an analogue one.