Batter cables arc when connected and get real hot!

My wife was driving our 07 Cobalt to the store,  as
she was pulling into a parking spot she lost the
power steering,  she finished parking,  threw it in
park and started to roll the window up when the
car died,  Completely died,  no dash or dome lights!  
Nothing. Key was stuck in the ignition and car was
stuck in park.
Now I'm no mechanic but I figures the battery was
a good place to start,  the battery is about a year
and a half old and still under warranty so I took it
down to auto zone to have it checked.
It still had 10 volts on it so, not dead. They threw it
on a charger for me and it held a charge,  so not
the battery.
I took it home and just for the hell of it decided to
hook it up to see what would happen,  I hooked up
the positive first and when I touched the negative it
sparked!  The light in the trunk came on to and cab
came on to,  so even know the sparking was kind
of odd I finished connecting the cables and when
ahead and tried to turn the car on,  it started up like
normal!  I let it run for a few min to see if it would
die again and even took it around the block,  
everything ran fine!  I decided to unhook the battery
just in case and both the positive and negative
cables were hot!  I didn't really want to touch the
contacts because of the sparks I had seen earlier,  
when I began moving the cables back and forth to
disconnect them,  little sparks were popping off
the contact.  It took the positive off and touched it
to the contact a few times,  it sparked every time!  I
considered the possibility that I may have hooked it
up backwards,  but it says right on the battery
which side is positive and negative.  Any ideas
would be much appreciated