If a cloud of smoke had descended on Reno, Nevada, become trapped in the lowest lying areas and deepest spaces of the city, and been concentrated as if you were standing in the middle of a raging forest fire among the mighty redwoods of northwestern California, it would still have been clear and fresh air compared to the smog filling the single cramped room in the basement of the Arc. In the lounge above, music pounded and stomped the floor, threatening to bring the building down in a cloud of dust. In the basement, cigarettes, cigars, marijuana and crack burned, smoke mingling, thickening the air, dampening sounds and lightening the heads of about 25 droopy-lidded people. businessmen and businesswomen. A couple of little girls, a couple of dirty old men. All were tattooed, pierced, or otherwise altered to reflect their choice of lifestyle, or lack thereof.

Anyway, some redundancy after the first sentence. You've already established the room was filled with smoke with that huge sentence -- which sort of works, though I suspect it could stand to be tightened up just a bit. You don't need to repeat it again; you could just say the air smelled of pot and be done with it (you used smoke and cloud twice, btw). That would complete the picture in my mind, anyway... knowing how the room smelled.

The other thing is the narrator's voice. It's good, in a long-winded, rambling kind of way. A bit of irony, a bit of sardonicism. I wonder who is attached to this voice, who is seeing the scene... and when you will introduce that person... and first person story, maybe?

Paragraph lengths shouldn't be an issue. They are what they are. Though making one too long will tire a reader's eyes. Pacing, on the other hand, is always a concern. Dwell too long in one place and you'll bore the reader. Now that you've set up your scene, I personally hope the story moves on and introduces some characters to follow in this basement full of tattooed and pierced potheads with briefcases. That would be my pacing advice.