This disgraced Covenant Commander was stripped of his rank and privilege and forced to don the ancient Armor of the Arbiter. Following this traditional Elite custom, a warrior is sent on a final suicide mission to claim great honor in death.
In the pursuit of this mission, the Arbiter discovered that the Covenant's Great Journey was a lie, and subsequently began a civil war that has shaken the foundations of the Covenant. The Arbiter's people, the Elites, have joined humanity's sturggle against the rest of the Covenant.
NOTE: No real clues here to whether the Arbiter will be playable or not in Halo 3. His inclusion as a playable character in Halo 2 was controversial, and Halo fans are broken into camps who would either like to see Arby return as a playable, or those who would rather spend as much quality time as possible with the Chief.
This would appear to be confirmation of a human-Elite alliance, only hinted at by the collaboration at the end of Halo 2 between Sgt. Johnson and Commander Keyes on one side and the Arbiter and the SpecOps Commander on the other. This explains the emphasis put on Brutes in Halo 3, as it seems Elites will no longer be among our targets.