Electrical – Arc-fault breaker in sub panel, pigtail to neutral bus or ground bus

I recently replaced an arc-fault breaker in our subpanel that I thought to be faulty (it kept tripping at strange intervals around when I added a new dimmer, but I found no issues with my dimmer install, karmatic misdirection at work).

However, when I opened the sub-panel I found that the old arc-fault breaker had its pigtail tied to the ground bus bar rather than the neutral bus bar on the other side of the subpanel (which I took to be wrong, as described in this other question). The pigtail was long enough to reach either side, so before swapping it, I moved the pigtail to the neutral bus bar. Powered back up, but no good, it was still immediately tripping. Apparently confirming my hypothesis of a faulty breaker. I installed the replacement breaker (actually a combo GFCI/AF) with the pigtail tied to the neutral bus per instructions and it was immediately working without issue (or at least, without taking issue).

Shortly after midnight the same night, my wife and I woke to the outlet behind the (fabric) head of our bed popping and arcing. I immediately went and shut off the new breaker and pulled the outlet out to ensure nothing was on fire.

The house isn't burned down but I'm rather confused on why the arc-fault didn't trip. I feel badly for usurping an apparently incorrectly wired breaker which was trying to save my life and putting in its place an evil and expensive replacement bent on my destruction.

So, is the pigtail supposed to be connected to the ground bus or the neutral bus in the subpanel? Is it possible there is just something else wrong in this subpanel or with the new breaker? What went wrong here?

Unrelated to my question, but for the curious, the cable coming into the bottom of the outlet box is somehow full of water. Yes, the water is welling up from inside the cable. Not enough to dribble into the box, but all the paper inside is soaked and there is a little pool between the wires. I suspect it's related to the recent remodel of the adjacent master bathroom (there was a roof leak created during work that was allegedly fixed). The intermittent tripping of the old breaker, in retrospect, correlated with heavy rain (not uncommon in Oregon).

Update:

I found the water entry point. There is an outdoor outlet on the same side of the house as the one that failed inside. Apparently this indoor box was feeding the outside one. I had looked at the outdoor box already, but it seemed dry. However, as soon as I loosened the bottom screw holding the receptacle in, water came pouring out. The end of the cable inside had been immersed in water, but apparently had no nicks in the wire sheath. Once this water wicked to the inside it cleverly located a nick in the hot wire from eleven years ago when the house was built. In celebration of locating the long lost nick in the wire, the water and cable set off a late night fireworks display.

I've resealed the outdoor receptacle box and left it disconnected from power since they're not getting along. I'll try pulling a new cable through when it stops raining sometime in August next year.

I'll be exchanging the evil breaker, but as its own test button was working fine, I have no way to confidently test the new one in a real situation.

I'm happy about all of this because it allowed me to justify to my wife the purchase of a Fluke tone generator and probe. Because, you know, our lives were at stake.