The Cumbrians got away to a blistering start with two goals inside the first 13 minutes from Rory Loy and a Lee Miller penalty as Stevenage went down to 10 men with the dismissal of Arnold before Marcus Haber replied for Boro midway through the first half.
Smith had some harsh words for Miller, but felt his 10 men gave a spirited display.
"It was not a good start, but we acquitted ourselves well where other teams might have buckled.
"I hoped we would finish with a flurry, but it didn't work out and even with 10 men I fancied us.
"It was a really disappointing display by the referee. I was bitterly disappointed with the first goal as the linesman had his flag up for offside. The second was a booking and even a penalty, but the ball was going out of play."
Smith added: "We were 2-0 down after about 10 minutes, but it should never have got to that point."
Loy was on hand to steer a header past Arnold from Andy Welsh's cross to give Carlisle a ninth-minute advantage.
And it was Loy who was send crashing inside the box by Arnold to win the penalty, which enabled Miller to drive the spot kick wide of replacement keeper Chris Day and double the lead four minutes later.
With Day on for the red carded Arnold, Boro brought off striker Steve Beleck. However Stevenage pulled a goal back against the run of play in the 22nd minute when Haber got up well to meet Chris Gray's cross from the right and beat Gillespie low down by the keeper's left-hand post.