you've now broken the connection between mosfet source and Arduino ground
There is one ground on the modified PSU (+5, +12, Gnd), so technically the source of the mosfet is connected to the arduino ground via the power supply wiring. The two grounds on the PCB are connected, just with 3 inches of wire instead of a trace. Should I still do this locally on the board as well? (i.e. add trace from mosfet source to arduino ground).