Electrical – Wall outlet only works when AFI breaker is OFF

You have confirmed my suspicion that, with the switch off, the outlet and the light are in series. That is the reason that both light dim when a 100 watt light is plugged in.

The fact that the outlet shows hot/neutral reversed when the switch is off tells me exactly what the "electrician" did. The outlet must be wired as follows:

• the hot side of the outlet (small prong) must be connected to the white wire between the lamp and the switch.
• the neutral side of the outlet (large prong) must be connected to some hot wire (probably black).

This way, when the switch is on, it is shorting out the outlet (hot-to-hot). When the switch is off, you have a full path from hot into the neutral side of the outlet, from the hot side of the outlet to the hot side of the lamp, and from the neutral side of the lamp to neutral.

Bottom line - the switch and lamp seem to be wired correctly. The outlet is miswired. Frankly, the wiring of the outlet is so screwed up, I wouldn't let the same "electrician" back in your house. Find a real pro to straighten it out.

The 4x4 box right next to the service panel is a great idea, and I do that myself a lot.

Nobody cares which wiring method you use downstream of the AFCI.

Between the service panel and the AFCI, the inherent problem is the AFCI would never* detect a problem on that stretch of wire. That is a vulnerability, so that is where they require metal jacketed cable before the AFCI if the AFCI is not a breaker.

So, use a better wiring method. I have to say, for wiring between a panel and a very nearby box, EMT is faraway the easiest way to do that IMO. Keep it shorter than 2 feet, whcich eliminates the wire derate for 5 or more circuits. Ideally use 3/4 conduit, which has room for more than 10 wires and will give easier pulling.

Go to a metal 4x4 x 2-1/4 box, and use a 2-GFCI lid with 1/2" of lift. That will give you plenty of practical room to fit wires. If needed use an EMT nipple to chain to another 4x4 box. An arc fault inside this heavy metal is very unlikely to successfully start a fire.

Use THHN wire on through the conduit. If the circuit can't easily be moved to terminate in the box, come back into the service panel with THHN and splice there. This out-and-back-in method has 4 wires in the conduit per circuit, so watch your conduit fills.

* Actually, AFCIs do have some ability to detect arc faults immediately before them. We recently had a Siemens AFCI breaker faulting because it was clipped into a GE panel, and the clip/bus was not quite compatible.