In the FPE file for the entity, under ";identity details", add the line isweapon = (whatever weapon you want). This will make FPSC think the entity is a weapon and allow you to have it as dynamic. Since you can't change the scripts from inside FPSC while in arena mode, you'll have to change the scripts inside the FPE file.
The entity isn't actually a weapon because it doesn't have a weapon script. Simply putting that line in the FPE file will allow the entity to be dynamic. So far, I have used this mostly for making elevators.
In the editor, the entity will have damage and weapon characteristics properties but just ignore them.
Also, when you alter the FPE file, make sure you Delete the BIN and DBO files for the entity and re-import it into the editor. Re-importing it means removing it from the map, saving the lvl, and thus having it removed from the library (you need 1.04 for that)
I have no idea if the above paragraph is necessary but I always do it.
I don't think this will work for characters because I don't think you can have an entity as a weapon and a character at the same time.
Please check it out