Thanks everyone for the responses and advice, there are new developments to the case, we were able to re-instate the dismissal judgement, turns out the judge put in a default plea and caused the warrant.
That said, we have an I-485 with a mistake on it not mentioning the arrest record and no idea how to fix that yet. We spoke to two immigration lawyers on the phone and they gave positive feedback on the case but of course want to setup an appointment which we did for next week.
Is there no way to fix this before filing the N-400, is it an IO's decision, do we mention our issue to the IO at that time? Is there no avenue but to go in front an immigration judge? How bad is all of this? The good news is his moral character the last 10 years is great, no arrests, some traffic tickets, taxes paid, job, degree, etc...
Any good advice will help, thanks again.
It is good that you have taken care of the outstanding warrant and that you have scheduled appointments with immigration lawyers.
In terms of your questions, here is my (highly non-expert) opinion. The real problem you have is not disclosing the arrest and the subsequent court case in your I-485 application. The solicitation charge and conviction itself would not matter that much for your N-400: it is a rather old (well over 5 years old) and relatively minor criminal matter. In and of itself, it most likely would not prevent your N-400 application from being approved.
Concealing that episode on I-485 is a different matter. If you do file N-400, you'll definitely have some explaining to do, and how it'll go will ultimately depend on the IO's judgement. (And, no, you can't go directly to an immigration judge). IMO, your best line of defense would be to plead ignorance and stupidity.
However, if you do end up filing N-400, you'll need to disclose the solicitation arrest/court case fully in your N-400 (not wait until the interview, but spell everything out, with all the supporting documentation enclosed, in the N-400 application itself).
The most problematic issue you'll have will be how to answer Q23 in part 10D of the form:
"Have you ever given false or misleading information to any U.S. government official while applying for any immigration benefit?"
IMO, the correct and truthful answer to this question in your case is "Yes". However, maybe there is some legal wiggle-room here, and that is what you should ask the immigration lawyer(s) about in particular when you see them.
Basically, in situation like this, the cover-up is usually much worse than the crime. Answering "No" to Q23 and hoping that the IO will not notice the inconsistence while reviewing your A-file and your I-485 may backfire very badly, and may be viewed, in and of itself, as an attempt to lie to immigration authorities.
You should also ask the lawyers about the likelihood of worst-case scenarios and of your subsequent options; by worst-case I mean the possibility (I don't know how realistic) that an IO adjudicating your N-400 might decide that your GC was obtained fraudulently, since you concealed your arrest/conviction when filing I-485, and may initiate GC revocation and deportation proceedings against you.
If it turns out that the probability of something like that happening is not negligible, it may be better for you to forget about citizenship and be content with living as an LPR.