Actually you are both wrong. Yes the buying low and selling higher is standard arbitrage, but the manipulation that is occurring there is just that - manipulation! And as is the case in securities and currency trading, the kind of manipulation that is occurring at Virtex, would be illegal if bitcoins were traded on regulated exchanges.
What we are seeing here is the wild west aspect of an unregulated system like bitcoins. Things like this can happen and there is no overseeing authority to stop it. It isn't a free market, it is a manipulated one.
A network of people - say 15 - all work together to drive the price down so they can engage in an arbitrage scheme. Guy 1 puts .4 btc up for sale at a lower-than-the current-price rate - guy 2 buys it at that lower rate. Now that lower rate is the "default" rate for the whole exchange. Guy 3 and guy 4 do the same thing 10 minutes later - especially if the rate popped back up again by a trade that occurred outside their network.
This is textbook rate manipulation and is screwing over everyone else on that exchange. Right now, Virtex's rate is under $88 Canadian (equivalent to about $85 USD) but over at Bitstamp, their rate is over $95 USD. That's a 13% difference that makes no sense. The Canadian rate should be HIGHER than the USD rate because the USD is more valuable than the Canadian.
And saying the Canadian market is "different" than other markets is saying nothing at all. That kind of estimation of the situation was definitely not informed by an education in either securities, currency or financial systems.