I'm not sure if this was fixed in the SE or if it was the unofficial bugfix but you cannot reverse pickpocket an arrow to have it duplicate anymore. Everyone keeps firing steel arrows.

You need to take the original arrows, too.

I know but the neither the bow or the arrows show up in their inventory - do I have to master pickpocketing before it will work? By that point I won't need to exploit arrows.

Depends on the NPC. Most NPCs unequip their weapons when they sleep; if they normally wear a melee weapon, leave and come back and they won't have their arrows equipped.

To change the arrow that they shoot you must be able to pickpocket equipped weapons, which IIRC is a level 100 skill. That is fairly easy to get if you use the Riften jail glitch, but you may not like it since it is kinda "cheatin".

I suppose the infinite arrow exploit is also cheatin'