Mario is #1 no question in my mind.
Distantly, I would say the Space Invaders and Pac Man are tied for second. Especially if you are counting on a worldwide basis. Not as many Americans would be able to identify a Space Invader, but every Japanese over the age of 30 will have no problem.
Third belongs to legendary characters who have yet to transcend gaming as a genre. That includes Sonic the Hedgehog, Link, Donkey Kong, the Tetris Blocks, the casts of SF and MK, the Final Fantasy characters, Solid Snake, Mega Man, the guys from GTA, and a whole lot of others. Sorry, not many arcade only characters in here.
Also, honorable mention for the #1 spot goes to Master Chief. Halo is VERY VERY VERY popular. But, it is sort of isolated from the rest of gaming as a community. The average Halo player would not be able to recognize many of the classic characters of gaming because they have been in the hobby for such a short time, and in my experience, have some sort of blinders on their eyes that make them think Halo is the only video game in existence worth playing. BUT, their raw numbers are massive, so you can't discount Master Chief as a serious competitor when it comes to most recognizable character now.