With a $6 box (CM17A) the Arduino can also send commands over RF.
This is starting to sound very expensive. I know running wires can be a pain but if you go wireless I see the following problems (warning, personal bias against wireless follows)a) expensive.b) not secure, your neighbours can switch your lights off (ok unlikely)c) local power, every room has to have a power supply off the mainsd) expensiveDid I mention it will get expensive. An Arduino and at least one (but probably two) shields in each room, that's maybe $50 but probably more.What functions do you need in a room, so far you've really only mentioned turning on/off lights.
I've got to go with BroHogan and suggest X10.
I'm not sure whether it's true or not but in reference to the wikipedia article about x10 it's totally useless in germany,
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