If the market is crashing then the bid ask spread is going to be very wide but i guess same will be true for common stocks. I think it is important to invest in high volume etf's like qqq/spy. So yeah you are right, arbitrage opportunities are still there i just think that during downtrends there will be more but in that case who cares about arbitrage! The best strategy is to go short.
Has this ever been observed to be the case? We have had moments of extreme or at least high volatility in the recent past and I don't recall any news articles about how VTI diverged from VTSAX. That being said, even if such a thing did happen, that would only affect people who trade the ETF during those moments of volatility, right? For anyone else, the only risk is that people would be so scared off of the ETF that there would be insufficient liquidity to restore the price to the right point. Even then, an authorized participant will eventually buy up the under-priced shares and redeem them.