The Arkenstone is a defunct Quest artifact diamond belonging to the Dwarf role, which existed in versions of SLASH'EM before NetHack 3.3.0 made race and role separate choices. When carried, it gave magic resistance and acted as a luckstone. When invoked, it granted object detection, as per the potion.
The Arkenstone comes from the Tolkien universe. It was one of the greatest treasures of the dwarves of Erebor (the Lonely Mountain), who called it the "Heart of the Mountain". Its function as a light source, or as a means of detecting treasure, is inspired by Bilbo's discovering it in the hoard of Smaug by its own luminosity. Its association with conflict was probably suggested by its role in the dispute that preceded the Battle of the Five Armies.
The Arkenstone patch for vanilla NetHack makes it a randomly generated lawful artifact that can occasionally (with a 1 in 75 chance) be found in the inventory of a dwarf king. This version of the Arkenstone is coveted by all monsters, so carrying it in open inventory causes conflict and aggravate monster. Even demons want it: if a demon prince sees that you have the Arkenstone in your open inventory, it will demand the gem as a bribe, instead of gold.
The Arkenstone is also present in dNetHack as the crowning gift for dwarf knights, a chaotic diamond. Here it does not aggravate monsters, and its conflict effect is toggled by invoking it (as with the Sceptre of Might). In addition, it functions as a light source when carried in open inventory.
In SLASH'EM Extended the Midget role (which is a remake of the defunct SLASH'EM dwarf role) has the Arkenstone as their quest artifact; here, it is a diamond that grants ESP when carried and grants a healing effect when invoked. There is also a separate artifact named "The Arkenstone of Thrain" which is a luckstone that can be invoked for "perilous identify" and can be obtained in the "Orc Barracks" special level.
Arkenstone, Heart of the Mountain, property of the King
under the Mountain, is the most valued jewel that the
dwarves possess. It shines white light that can guide
your steps in the darkness, and carrying it is said
to increase your carrying capacity. When invoked it
will reveal the gold around you.
It was the Arkenstone, the Heart of the Mountain. So Bilbo
guessed from Thorin's description; but indeed there could not
be two such gems, even in so marvellous a hoard, even in all
the world. Ever as he climbed, the same white gleam had shone
before him and drawn his feet towards it. Slowly it grew to a
little globe of pallid light. Now as he came near, it was
tinged with a flickering sparkle of many colours at the
surface, reflected and splintered from the wavering light of
his torch. At last he looked down upon it, and he caught his
breath. The great jewel shone before his feet of its own inner
light, and yet, cut and fashioned by the dwarves, who had dug
it from the heart of the mountain long ago, it took all light
that fell upon it and changed it into ten thousand sparks of
white radiance shot with glints of the rainbow.
[ The Hobbit, by J.R.R. Tolkien ]