Hi Speedcube-
Thanks for checking out the new update! Yes, the enemies being able to damage one another was something we recently tried implementing just because we thought it would be fun. We're beginning to wind down on working the arcade mode for awhile in order to start up on the story mode, so there will be some things we'll need to revisit much later to improve on (such as the reticle still being visible with no weapon equipped and still getting kills counted towards your rank if it was enemy vs. enemy, etc.). We think the mode is very fun so it will be worth sprucing up once we take care of the story.
-sodaraptor