I'm trying to see this a simple as possible.
What's the difference between the 8-wire (4-pair) "Loop" and the other 8-wire cable??
If you have existing cat5 cable, you have enough wires to be able to send several switch-closure signals to Arduino. Each of the 4 pairs can send 1 or more switch signals. Your code can decide if the switches toggle something, or if one switch means "on" and another means "off".
You can put multiple switches on one pair by using different value resistors.
(A fixed version is on the http://ArduinoInfo.Info
WIKI here: http://arduino-info.wikispaces.com/HAL-LibrariesUpdates
How will you control light circuits? You might use low-cost relay boards like these: http://goo.gl/3mXu0
See "Arduino Power" here: http://arduino-info.wikispaces.com/ArduinoPower
DISCLAIMER: Mentioned stuff from my own shop...