Obtaining 4-4.2V rail from 5V output of LM7805 voltage regulator
Replace the 7805 with a 1Amp or more adjustable regulator and set it to 4.2 volts. Run both the arduino and everything from that  instead of running it off the 5V. The Arduino will be fine with 4.2 volts without any issue, and it makes it easier since you dont have to worry about level translation for the input lines either.