I agree that citations to arXiv are useful because this is an open and accessible online resource unlike most journals or conference proceedings. But papers should be identified as preprints if no refereed version is known to exist. (Indeed, there is a long tradition of citing preprints or even personal communications.) An important caveat is that many arXiv posts are later published in improved versions, using feedback from referees or others; but the last version you see on arXiv is not necessarily the final one. Sometimes significant errors are corrected or important citations added only in the published format.