I’m having a lot of trouble recovering after an arbiter combo when he tosses a grenade - it’s basically unblockable, and it prevents jump outs, recovery moves, and even if you manage to block the next three attacks/openers from the arbiter, the fourth will hit because the grenade is unblockable. The only solution I’ve found is to throw, and higher level players will never let you have more than one.
How does one escape this nonsense other than preemptively breaking his previous combo (because everyone locks out once in a while)?
Just try to block.
Sorry but that’s all I got.
I often escape it by using my Aganos’ chunk-armor. WIth that in mind, using an armor-based move at the right time might help (such as Thunder’s shadow triplax, Riptor’s heavy shoulder rush, TJ’s charging punch, etc.
It would also help if you told us what character you mainly use.
@RGLOfficial is really good with Arby; he might be able to offer you a suggestion or 2. 
I just started a few days, playing almost exclusively Kim Wu, and tiny bit of Jago.
It’s tough because you could sit and block and get command grabbed or jump, eat the grenade and get comboed. Since the explosion is considered a projectile, try answering with a projectile invulnerable move like Jago’s shadow Wind Kick or even any grab.
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Kim Wu has no real wake up options beside her Shadow Dragon Kick.
With Jago, I would suggest Dragon Punching out of it. But His Shadow Windick is projectile invulnerable and is also very good.
I typically go in after getting stuck by a grenade. Sitting still is a great way to get command grabbed, and if I’m going to eat a combo I might as well make him have to deal with his grenade too. I play like there’s no grenade at all…worst thing that happens is I get hit (which was going to happen anyway if I just try to hold down+back), best thing that happens is get to use a combo ender or shadow to go through the explosion.
A lot of times I’ll get the hit but have the grenade explode on me before I can end the combo (I play Hisako, so it takes forever to get into combo). This is also fine. The main thing is just that you can’t allow being stuck to prevent you from doing anything. If you’re going to get hit you’re going to get hit - may well make Arbiter work for it.