The arena is located...*thinks of how to describe it* The town on the west side on the east continent. The town has sand all around it, but there's grass to the right side of it. it's the second town to go to after you get your Knight forms in the story.
It's the only town with two inns and the Arena is ALL the way north in the town.
@Dashishi: wow.. thanks a lot for the info.. but i never liked card battling in this game.. and the codename duel king doesnt really boots keroro stats..
Man, times like this make me wish you could do a spoiler IN a spoiler. Ok, I changed the format on the front page to fit the new info. Tell me if it's alright.