Arlene having the means to nullify the immortality contract indeed doesn’t make sense. Because if her affinity for spells allowed her to cancel it, why couldn’t she kill herself when she so desperately wanted to die? So yeah, that doesn’t seem to work.
I don’t believe their aim was necessarily to kill the other Great Warriors, though. Garam said that V and Arlene “formed an organization which opposed Zahard and started a war in order to steal the key which Zahard had”. Killing their friends wouldn’t have done anything good. Given that they were conflicts among the Family Heads, some of them probably didn’t even consider V and Arlene as enemies. Besides, V’s suicide note says “return to your companions”, so their relationship couldn’t have been too bad. I think a lot of it can be boiled down to being a political conflict between the whole group - like we see it happening right now.
My assumption is that FUG as we know it is mainly influenced by how big it’s gotten. It’s a cult, a religion, not an organization led by two Irregulars. The Slayer system is probably something Luslec established, since its FUG’s core, but it’s very weird that he created it. Was it simply his idiocy after everything that went down the line, a wish for revenge? Giving people false hopes? Does he have a master plan like Bam killing the Guardian and thus making the contracts void?