Ty, unfortunately the bit of the 'Text' tab of the 'Properties Palette' that would have been most revealing is not shown on your screenshot.
Have you checked that the 'Outline' function - third icon from the left, in 'Colour and Effects', just above 'Style Settings' - has not been activated, possibly by mistake?
Also, I can't tell if the settings you show in 'Properties' apply to the text frame on the screenshot. (I would normally expect to see 'drag control points' - little red squares at the major compass points - within a selected text frame and they're not there.) And 12pt isn't a large size for Arial.
Have you tried doing the same thing on a fresh document? Do you get the same results?