There is a chain of logic that you're partly through, that runs approximately like this:
"Hey, what if...?"
In this case, hey, what if we dunked our arrows in oil and set them on fire and did more damage? This is an idea, by the way, that can just as easily come from the GM side as the player side.
"Well that worked, so..."
So we're going to keep doing it, ad infinitum. Because why wouldn't we? Free bonus! At that point, it seems pretty obvious that if this always works, then everyone should do it, which is a conclusion your players have reached. There is no reason you should not reach it, too, at least for any creatures that use ranged weapons and have mastered fire.
This at least puts everyone back on the same balance, at least as far as those creatures are concerned.
But then, why isn't everyone doing that? Why is it the case that, literally, everyone with arrows and fire does not default to this action? There's a certain assumption in the basic actions of the game that the actions are... well... basic. That they are default. That they are the base cases to which bonuses or penalties are added, because bonuses or penalties are in some way non-normal or exceptional.
But your players are trying to move the goal posts of normal. Are they really that brilliant that they are the first people in the world to see this obvious tactic? Or has everyone else tried this and discovered that there is a reason it is not standard?
"Ohhh, I see!"
This is the approach I take: In a standard D&D type campaign, the players have great license to be heroes, but not necessarily great license to be fertile and revolutionary innovators for basic actions. Reasoning backwards, there is some reason that these ideas are not standard, some drawback that may not be apparent at first. In this situation, I would consider things like:
- It takes time to properly coat weapons with oil or pitch
- The right type of oil or pitch is expensive
- ...or hard to transport safely
- ...or prone to critical failures without specialized techniques or gear
Something which, on average, makes the fire arrows not much of an advantage except in particular situations (flammable mummies, maybe, I dunno.) The particular rationale is somewhat important, but more important in my mind is the general lawyer-like (which I mean in a good way) reasoning backwards from "There is a reason this is not standard," to finding and enforcing the reason.
I don't always get this right the first time, but I am also not shy to jump on something the second time. I would much rather have a cool idea work once, dramatically, and then stop; than to disallow all cool ideas forever or to have something cool work for five sessions and then stop dead.