So.. let's look at upside/downside on chakra arm vs demon arm (somewhat biased, but trying).
Chakra Arm:
+ Works more with this "doing unnatural and unclean things with chakra" thing we have going on. We're almost certain to find more exploits in that general direction.
+ An excellent defense against having people try to tear our arms/legs/etc off in the future. Also helps when doing terrible things to whichever that Jashin freak was. Rip off his arms and let him bleed out. So we take the damage he takes? Who cares?
+ Highly likely that we'll be able to modify shape and size of arm trivially, which offers some real advantages in combat. Likely to be a fairly potent weapon overall - kind of important, given the current state of our weapons.
+ All natural. Nothing but pure MIO.
+ Forging an arm out of nothign but chakra, raw will, and crazy personal experimentation shows that we're even more awesome than people thought we were already. We lost an arm. We decided that we didn't *want* to have lost an arm. We fixed the problem.
- That sounds like the sort of experimentation that's going to take a *lot* of chakra, and a fair amount of effort. If we're dumb about it, we'll leave ourselves even more weakened, in the demon realm, while an Oni hunts us. If we're smart about it, that means that it's going to take a while - we'll need to try to find better food and better sleep.
- Not quite as dark and edgy as having a demonic arm (until/unless we start playing with bijuu chakra). That other arm *is* demonic, right?
Demon Arm:
+ Mystery box! We don't really know what kind of critter this is, or what it means. QQ likes mystery boxes... whether they're wise or not.
+ Will probably have some sort of awesome power associated, assuming we can get it to work.
+ Whatever we get out of it might take a while to master, but the basics are likely to come online pretty quickly.
- We have no idea of what this thing is, but we know that it's a lot more powerful than we are (or was). We can guarantee side effects, probably mental side effects, possibly chakra-tainting.
- its seals are decaying, and the arm not in the seals is pristine. Other demons haven't tried to take the arm, or disturbed those decaying seals. At *some* point, that thing's waking up. It's possible that trying to take the arm will disturb the seals enough to let it tear out of its bindings the rest of the way... at which point we'll be in something of a bad spot.
- It's cool in a kind of edgy way, but it's not cool in a way that blatantly displays MIO's inherent awesomeness.