It may very well be a bad flyback, tray-loading G3 iMacs were rather notorious for eating them. A bad transistor or cold solder joint is certainly possible, but the fact that you heard arcing at least once may mean that shorts are starting to form in the flyback.

If nothing else, they can still be found cheaply (dalbani.com has most common iMac FBTs in stock) so picking up a spare may not be a bad plan.