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How does the ArcMap Interoperability Add-on handle projections or Spatial Reference Systems?
Web Map Service (WMS) or Web Feature Service (WFS) layers are requested using the Spatial Reference System (SRS) code for the first ArcMap-supported coordinate system it finds in the GetCapabilties response. This SRS code is used when requesting data. If the ArcMap data frame is in a coordinate system that differs from the coordinate system of the requested data, ArcMap reprojects the data on the fly. When WMS data is reprojected, its reprojected image can appear grainy and warped. WFS and GML layers display more clearly when reprojected by ArcMap because they are vector based layers.