I finally decided to create an account so I can maybe help with other TestNG issues that I'm experiencing with paralleling with Arquillian, however I see your problem and within my projects I am able to use parameters within Arquillian.
I have used parameters like you defined within the suite and using maven pom (surefire/fail-safe).
How are you executing the tests? Maven or IDE?
If you are running via IDE
Are you right clicking on suite.xml and selecting Run As->TestNG Suite? (If so this should work fine)
If you are right clicking on the test file itself, then you have to add the parameter as a vm argument. To do this you need to go to Run As->Run Configuration... and select the Arguments tab, add -Dcontext=Default to the vm arguments box. This will then pass "Default" to your test.
If you are doing it via maven, if you can post you pom, I might be able to help.
I'm using MAVEN
Moved to general Arquillian space.
If this is not the exact issue you are struggling with [ARQ-1282] TestNG @DataProvider is fully invoked for each record - JBoss Issue Tracker please create new one and we will take a closer look.