Citing a paper for which a corrected version exists online
I would list the published version in the bibliography, with something like "corrected version available as [insert its article ID] from http://www.arXiv.org" appended to the end of its entry in the bibliography.  When you discuss the article in the text of your paper, you should mention the corrections there too.

You should certainly not cite the arXiv version without explaining that the published version contains a mistake (readers may assume the published version is a cleaned up copy of the arXiv version, rather than vice versa), and it seems weird to say this without actually explaining where the article was published.