Agree with you on most of that. But, I won't be surprised if Arsenal beat City on Sunday, but that's not because Arsenal have become so much better (I don't think they're any better than last year, and last year they were extremely lucky), but simply because City look a bit out of form. They're not really flowing like they can atm. Several key players are injured, and other look out of form.
And if Arsenal win, they'll claim they've taken a massive step and they'll celebrate it like they've won the league.