So the seller has offered to cancel the contract and return the deposit or alternatively before we close we will be required to sign something saying we won't arbitrate over the 8' ceiling, possibly offering us a new fridge or something in return.
The builder's offer seems fair, especially since it is entirely possible the contract you signed would have adequately protected the builder from any cancellation or deposit refund.
If you DO cancel the contract, make sure this cancellation is in writing and that it makes clear you are no longer obligated to fulfill any of the terms of the former contract.
If you decide to go ahead with the purchase of the house in exchange for some sort of "freebie," make sure this exchange is in writing and that it is spelled out clearly and specifically what you are receiving as compensation for the 8' ceiling height.
And before you sign any agreement not to arbitrate, read it carefully. You want to make sure you understand all terms of the agreement and are not signing away your right to seek legal recourse on anything but the ceiling height.
Good luck with whatever decision you make.