From http://www.arcflashlight.com/faqs.shtml
Quote:
Rechargeable cells will work in the Arc-AAA and produce a slightly dimmer output. The self discharge common to NiCad and NiMH cells may cause the flashlight to not be ready if left unused for an extended period of time. Because an alkaline will last for several month of normal use, we recommend an alkaline cell over a rechargeable.

1.7v, non-rechargeable Lithium AAA cells will work and have been tested in the Arc-AAA. The light will be slightly brighter and the run time will produce a more flat discharge curve. Runtime may actually be less because of the flatter discharge curve. They also work better at sub-freezing temperatures. Other advantages include less weight and less likely to leak than an alkaline. These cells can be 4-5 times the cost of a good alkaline. For most people, they are probably not worth the extra cost.

Caution: there is a type of AAA lithium cell on the market that is rechargeable and rated at 3.6v (nominal). These cells are not recommended for use in the Arc-AAA as the voltage is too high. Using them would likely burn the LED out and void the warranty.