Ok the problem has been resolved by doing these steps. The zip files are no longer being sent to quarantine in a continuous loop.
1. Turned AutoRestore Off.
2. Created the Top Level Folder rule/path again.
3. Restored all the zip files in Quarantine.
4. Created the Top Level Folder rule/path again so that the zip files that were restored to the /packages folder were now seen by ARQ and the paths to those zip files were added to your database.
5. Turned AutoRestore On.
Everything else looks good and I do not see any other issues or problems on your site.