There is no doubt that arched windows add visual interest and architectural value to a home, however they can pose a few issues when trying to decide on appropriate window treatments.
Most people don't want to lose the distinct profile of the arch and decide prematurely that drapery panels are out of the question. However once shown the limited options available on the market they usually have a change of heart.
Hard blinds such as shutters and fan blinds are an option but they are costly with breakable parts. They also often fail on an aesthetic level. I have yet to see a custom blind/shutter in an arched window that didn't either dwarf the window, steal all the light or look like it was channeling the 80's.
I often advise clients to leave an arched window with no window treatment at all. A sacrilegious thought for some drapery designers! However, if there are other ways to add decorative warmth to the room and there is no functional need to cover the window, I will recommend leaving it bare. Especially in front foyers above the door or when dealing with very small port hole sized windows.
However, if your furniture and floors are burning, the sun wakes you up too early and your tired of running in a crouch by the window in a towel, then drapes may be your best option.
My preferred way of treating an arched window is with two panels placed above the arch. To maximize the architectural value of the arch you can extend your rod on either side to allow the panels to sit off the window. Going above the arch accentuates the height of the ceiling and elongates the window while framing it.
Avoid whenever possible from putting the rod through the transom especially when you have standard 8-10 foot ceilings. Cutting the window in half and adding folds of fabric half way up actually dwarf and over power the arch and can give the effect of a lower ceiling.
That being said, one thing I've learnt over the years is that no home new or old is ever symmetrical and sometimes a uneven casing, molding, bulkhead or wall may prevent you from bringing a rod across the top and you have to put the rod through the transom like the photo below.
If you simply must cut through the transom, make sure to use a plain or textured neutral fabric. A pattern or even a strong stripe or color will draw attention to the shortened drape. Let the arch be in the focal point of the window and choose a fabric that blends in with the room and leads the eye up the window to the arch.
For a more romantic and traditional look you can have the panels follow the curve at the top of the arched window. Medallions or velcro are used to hold the panels in place and are hence stationary. If you need the panels to open and close, you will need to follow the arch completely with fabric and use tiebacks to open and secure the panels. When considering this style you will want to get the advice of a professional since the measurements must be exact in terms of length, width and fullness.
Photo credit: Robert A.M Stern via Architectural Digest photo credit:http://www.smithandnoble.com/sn/photo_gallery.jsp# photo credit: http://www.diamondbarattadesign.com