Looks like equipment doesn't auto-equip in the arena. Solved it!

I don't know why my weapon wasn't set up. I thought it was supposed to auto-equip and apply if checked in the common settings. After manually adjusting the equipment settings for each hero in the hero screen and checking if the equipment was properly equipped in the arena, I finally cleared the event mission 'Reach Silver Rank in Arena' which I couldn't beat before. Phew lol. Now I have to find and re-equip some of the gear that got unequipped and mixed up while I was fiddling with the settings.