Is arduino effected by external electrical noise ?

Hello people!!!!

i have installed an Arduino in a machine just beside a 2 hp AC motor. the arduino is also connected to LCD display. when i turn the motor on, the arduino starts MISBEHAVING (:p) by missing data etc. when i turn the motor off and rotate the shaft manually, it responds fine. similarly, when i disassembled the arduino from the machine and placed it outside, it is also responding fine.

Can someone tell me what is the problem with this chap (arduino)?

You're picking up noise from the motors, as you suspected. Put it in a metal box connected to ground, and see if that fixes it.

Sounds like noise. Shielding may help.

How is your power supply? Same as the motor? That's another avenue for noise to reach your Arduino.