Keep the reciever away from the servo as well. Servo, especially metal geared ones, cause intereference when they operate. Seeing as how this issue only occurs in reverse, I am not sure if it is entirely the fault of inteference. I would run anywhere from 4 to 7 degrees of timing on a mod like that. The Venom Firebal modifieds are budget modifieds. They are a litle cheaper than a good Speed Gems or Reedy, but they'll get the job done quick enough. As for 20 degrees of timing, that is insane for a 17 turn wind! You can try 20 degrees of timing if you want your motors to draw more amperage than the starter in your full size car!

Also, do you have 3 diodes on just one motor or on both motors?

Arcing will occur in most every motor when it is forced to run reversed timing. It is unavoidable, because every component on the motor is designed to operate it's best in one direction. The springs may be different from positive to negative (not sure on the Fireball. I have a 15 turn Fireball downstairs but it's buried under about 30 or 40 other modified motors ), the brushes may have a softer edge on one side, and other factors affect the severity of arcing. They will also arc when braking. It's not something to be dreadfully scared of, just something to be aware of.