AC cable, aka BX cable, is still allowed to be installed, as per National Electric Code 2002 edition Article 320, and the metal sheathing is considered an equipment grounding conductor as per NEC 2002 Section250.118(9).
The issue with BX cable is that the continuity of the metal sheathing relies on the clamped connections at each box. Nowadays, with Romex having a separate ground wire, along with MC cable, which looks like BX, but has an insulated green ground wire, the worry of a loose clamp has disappeared.
Removing the BX is not necessary, just open each box on the circuit and tighten each clamp or connector. Thou BX may have a bit higher impedance, should, and still does work fine.
The person you spoke with obviously has his own experience, which I do not doubt, again simply because of loose clamps.
Protecting the circuit with AFCI is a good preventive measure, however, will not solve any loose clamp/connector that may exist. And just adding a GFI does not create a ground path that you think is missing, no problem using one on the circuit, it just does not offer what you think.
Having the BX only for lighting circuits eliminates the possibility of someone coming in contact with any BX circuit. Again, I do not mean to imply that there is any problem with BX cable, just trying to give you a comfort level.
By the way, I am a licensed master electrician in two New England states, one of the toughest locations in the country, outside of Manhattan, and a state certified inspector in one of them, with over 30 years experience from subdivision homes, custom high end homes , retail stores the size of malls, industrial up tp 13KV, commercial high rise 50 stories, data centers for financial, etc.
Again, check each clamp connection at each box for tightness, and I am sure you will be fine. BX sheathing is a continuous piece of steel, and most have an internal bare continuous wire that is intended to assist with the continuity of the cable to act as an equipment grounding conductor.
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