The knee block takes a lot of stress and a crack threre would be of concern. It should be looked at by someone who is familiar with structural repairs.
I’m pretty sure the block of wood under the column is supposed to be there and is not a repair.
Before you start stringing the harp with your new strings, be sure they will be long enough for your Pratt. Lever harps have different vibrating lengths and it’s no fun to find out your new string isn’t going to be long enough.
The gap between the knee block and body will probably lessen when the harp is fully strung, and I’m glad you took the pressure off the strings that are currently on the harp. It’s a good idea not to stress the board unevenly. If there’s any bellying, it will appear when all the strings are on and pulled to pitch.
PS: There are arms in the mechanism of a pedal harp, but none on a lever harp. I think the “arm” you are referring to is called the neck. The neck is the curvy part where the tuning pins are.