As other's point out Arteta is not even City's number 2 but it is clear from various accounts he has done a very good job and fitted in well with Pep's coaching team.
I see it as a huge risk for Arteta and Arsenal if as now seems very likely they give him the job. He may be very talented and they want a head coach now rather than a "manager" but I think it needs someone with experience and even then it will be tough for the first one through the door after Wenger.
From City's point of view, it will be a pity if Arteta goes; especially if he has the makings of a top head coach because promoting from within when Pep leaves has a lot of appeal. However, if City even decide to replace him, there will be plenty of options, whatever type of person they want.
The key is clearly someone who can carry out the job excellently but I'd like to see it be a potential successor to Pep. People are already speculating about getting Iniesta in but my first thought was Terry Henry. Frank Lampard has been discussed as an U18 coach so he might fit the bill if a top ex-player with Premier League experience is being sought. Not that the need for that experience is the same as it was tow years ago. I'm sure I read that Xavi, who speaks good English, was looking to get into coaching. Also, as we have discussed before, Craig Bellamy would be an interesting addition to City's coaching set-up. I've not doubt there are plenty of less high profile guys who are known in coaching circles that could come in too.