You cannot combine the Arc with front in-wall speakers. The Arc alone already includes the center, front left, and front right channels. So the maximum setup with an Arc is the Arc + two Subs (one must be a Gen 3), + two surround speakers.

If you want to use in-wall speakers, you can use the Amp to power the front pair and another Amp to power the pair of in-walls as surrounds. This is a 4.0 setup with a phantom center channel. You can add a subwoofer to complete the 4.1 setup.

Side in-wall speakers aren’t supported in a Sonos home theater setup.

Unfortunately there are no front speakers, the provision for the arc was made and then provision for wireless rears were made. If I install the 4 lateral speakers as rear surrounds would it work? 

Sounds like I'll have no choice but to do this and forget about the rear ERA 300s/ Play 5’s

See the image attached for reference

What would be the best system for side in walls in your opinion?

If you want to use four side in-wall speakers, you need to go with a traditional home theater setup with a receiver and separate wired speakers. With four side in-wall speakers, you will have to go with a 9.1 setup.

If you want to stick with Sonos, just go with the Arc + Sub + Era 300s (or Fives) as surrounds. The in-walls (powered by an Amp) could still be grouped with the Arc to play music, but they would not be included with the home theater setup to play TV/movie audio.

Hi

Take the advice given by @GuitarSuperstar. Your concept/envision for Home Theater is not in-line with Sonos. BTW..it’s not a Sonos issue nor limitation. Sonos was never intended to work as a Home Theater via your conceptualization.