TITLE: Is it usual for a referee to heed updated versions on arxiv?
QUESTION [32 upvotes]: I've put a paper on arxiv one year ago and I've submitted the version 6 to a journal seven months ago.  
During these last seven months, I've given several talks about this work, which led me to update again the paper on arxiv, to fix some typos, polish, add clarification, add a few new applications and questions... nothing very serious, but the last arxiv version (of 51 pages) is surely better than the submitted one (of 47 pages). 
Out of respect for the work of the referee and to not delay the report, I believe (perhaps wrongly) that it is better to not update the submission before the first report; but I was wondering:
Question:  Is it usual for a referee to heed updated versions on arxiv?

REPLY [12 votes]: I am hesitant to try to add anything further to the solid answers here, but here it goes anyway.
In practice, here is what I do:

Once I have a manuscript that I feel is publisher-ready, I send it out to experts that I feel might be interested.  After a week or two I re-read, make updates, and incorporate any feedback I received.
Then I post the manuscript on the arXiv.  I again wait a few weeks to see if any feedback comes.  After that period I make changes as appropriate and give it another read making edits as they arise.
Then I submit to a journal.
Generally speaking I do not update the arXiv between submission and a referee report.  In that time I always find typos and minor edits.  Sometimes new content wants in too.  To address this I make said changes and keep a log, commented out in TeX, at the top of my file, itemizing all changes that I have made.  After the referee report, I address the referee suggestions and if rejected update the arXiv and resubmit.  If accepted, I use the log I created to walk the referee through the changes (to make his/her job easier), and then update the arXiv.

This process has worked for me so far. There have been an occasion or two where I have broke protocol (exceptions always arise), but this is my attempt at a "best practice" from the author's point of view.
As a referee, I only consider the submitted manuscript.  If I were to receive an update in the middle, generally speaking, I would consider the "clock" reset and start over from scratch.  That said, I will sometimes compare the arXiv version to the submitted version.  But I evaluate exclusively on the submitted version.

REPLY [4 votes]: As a referee, I usually stick to the submitted version, which is what I am asked to evaluate.
Often, it happens to encounter an error, an imprecision, or an unclear passage. Sometimes, it is not immediately clear whether it is just a typo, or something the authors really did not consider. In these cases, I usually check for a more recent version on the arXiv, or on the author's webpage, to see whether that part has been somehow improved or corrected.
So, updating papers on the arXiv even after submission could be beneficial to both authors and referees, by saving some time. 
Indeed the possibility to improve the manuscript after the submission is not an excuse to send out poorly revised manuscripts for evaluation.
To comment Friedrich Knop's answer, in my opinion it is a very good (but not widespread) practice to update the arXiv version to fix or improve parts of the manuscript - even after publication. Most of the times, however, the arXiv version is not even updated to reflect the (sometimes substantial) modifications suggested by the referees.