Well don't confuse the MIDI Local on off with the Kurz Local Keyboard Channel. They are very diffrent things. The point of the Local keyboard channel is to allow you to use all the Kurzweil Setup specific features that are not standard MIDI protocol. You send one channel in and it plays the whole setup. It is there to do exactly what your asking.

Once you get the Local Keyboard stuff down it works very well. Just set the MIDI mode to MIDI and set the Local Keyboard channel to 1. Create a track in Cubase that sends to the K on channel 1 and your all set. Not really that bad.

Accually my favorite Arppegiator is the Kurzweil XM1 but the box is not for the light hearted as it packs a awful lot into a tiny display. Still it has more controlable options than most but it is really a midi programmers box and not big on instant gratification. It is has three arpeggiators in it that are either independant or can be cascaded (out put of one arp feeds the next). Most every parameter can be controller realtime via MIDI. It also has more advanced ribbon note playing features. It is a pretty cool little controller.

The Korg arp in the triton is quite nice too.

There are some cool software arps out there though but I have long forgotten where to find them.

Never really checked out the Nord Arppeggitor so I can't comment on that one.

Heck I still get good use from the arpeggiator on my old sixtrax so I guess it just depends what works for ya.