By the way Mach is working with it, I am guessing that the up and down signals will affect the z-axis regardless of THC on or off settings.
Then something's wrong. Whilst the fire's lit, your THC will always be sending UP/DOWN signals - BUT - with Mach's THC set to OFF it should ignore those UP/DOWN signals. With THC OFF there should be NO, ZERO, ZILCH, NADDA movement of Z.
I am not using arc-ok as I have no more inputs on my board.
I'm guessing you have 1) E-Stop, 2) limits/home, 3) probe (G31), 4) UP, 5) DOWN.
IMHO you'd be better ditching 2) limits/home and using it for ArcOK.
OR
Ditch 3) and use G28.1
I can see the z motor turning slightly as it cuts when the THC button in mach is off
Then as I said above you have a problem. This shouldn't be happening
if I turn this (THC) on, the torch will pierce but then do nothing presumably as it is waiting for arc-ok?
Indeed - with THC ON Mach will not command any movement UNTIL it gets ArcOK. ArcOK is important - you "can" frig the system to work without it but I wouldn't recommend it. ArcOK or limits? - to me it's no contest (especially on a small table).
The only way I can see to use the arc ok signal is to move the e-stop button to the limit inputs, I think that will do a similar job, then I can use the unused e-stop input for arc-ok.
You can't not use E-stop - you could move the limits to the same pin as the E-stop and free up the limits pin - if that's what you meant - but I'd suggest you consider my suggestions above.