It seems that the HDMI ARC control is really screwed up by a Diyomate device. Confirmed. In fact, I had gotten hold of yet another device - Diyomate X12 and a consistence behavior is observed.
Without the device, my TV and Amplifier plays nice ARC controlling the sound. Once the X12 is plugged in, the whole ARC connection is screwed up and does not work anymore. So the big question is this. What does the Diyomate device do to the HDMI signal? Or rather what are they sending that is causing the rest of the device to be confused. That is something rather interesting to know, but not easily resolved unfortunately.
Meanwhile, I would still want to use my Diyomate here and then, but in order to make my whole Home Theater System works, I have to unplug the Diyomate's HDMI whenever I do not use it. Hope this helps some of you out there.