They will certainly eat fanworms, and I know people who have watched them eat xenia.
"Reef safe" seems very relative. A lot of people say peppermint shrimp are less destructive than arrow crabs, but I think they just have different diets. Now that the last pep has disappeared from my tank (they all went mysteriously) the terebellid worms are doing great.
If there is a point to this post, it is that almost anything you put in a tank will eat or bother something else. If the arrow crab starts munching on a beloved coral, then it will have to go. Otherwise, they are really cool looking.