I found if you first create the online custom arena using "default" for the configuration dropdown, the arena won't crash the game. Then, once in, you can load your custom tables and continue setting up the arena.
I've only password-protected an arena once - while I was in doing super-secret setup tests. It seemed to work fine, and I've seen many others with their arena passworded.
I believe that because you will only see historical skins that have been approved by HTC in the online arenas, you will most likely only see the same for custom arenas.