Just to add to this. I just ran the gcode through AL v0.8.3 and opened the result in CamBam.
In 0.8.0+ the user has the option of using a raw probe file (RPF) which keeps the probing separate from the etching (this has many benefits).
Using the RPF in the AL v0.8.3 process, CamBam shows me this:

- 083ALwithprobefile.PNG (55.78 KiB) Viewed 11599 times
so yes, it looks good to me.
However, if I try again without using the RPF, I get this:

- 083ALwithoutprobefile.PNG (59.92 KiB) Viewed 11599 times
As you can see, the Arcs are missing, which is confusing since the Arcs exist in the gcode file. So why doesnt cambam display them?
After much head scratching I came to the conclusion that arc radius' need to be very very precise with respect to the centre of the Arc (defined by I and J) and the start / end points of the arc, otherwise your controller will complain. Cambam probably encountered the same issue and decided not to display any arcs here. Mach3 may or may not have the same problem because each controller has different tolerances with respect to arcs.
So, to answer your question of whether the latest version of AL will handle arcs. YES, absolutely, as long as the RPF is used, see "Probe log levelling (as of version 0.8)" in
http://www.autoleveller.co.uk/autoleveller-guide/ for details on how to use this.
When AL encounters a large arc, it breaks it down into smaller arcs using a lot of maths and trigonometry etc. This is a quite complex approach and quite problematic as shown here and in other places on the forum but does keep the curves very smooth.
Probably a better approach would be for AL to convert arcs to lines internally as a post-processor might do and as kvnrydberg mentioned. Once the arcs are converted to lines, AL can just level these, the same as any other line segment. Much simpler.