went to a family members house to connect a coax cable splitter. When I started removing the connections off the old splitter there was arcing and the lites in the bsmnt. dimmed. After a few minutes they returned to normal. Could this be a result of a loose neutral or improper grounding of service. I am going to run a new ground wire to the water service and install a ground rod. Has anyone ever seen this happen before?

There is very likely a poor connection somewhere on the service neutral. The cable coax is connected in parallel with the neutral as a result of the code rules. Any arcing accompanied by lights dimming or getting brighter when disconnecting a coax is a very strong indication of a neutral problem. Note that in the case of an open neutral there is also a shock hazard...you could have 120 volts between the two parts of the cable system after you disconnect them.

I have to agree with Don, after hearing my father tell me many tales of this happening...

Ian A.