well... I can't really see what it is you're talking about (a closer in shot would have been better), but I can make a guess. If I'm wrong ignore this, and post a clarification of your question.

I think that what you're saying is that there apprears to be a sharp edge between the arms and rest of the body, even though/if the geometry is otherwise smooth. If this is the case, its an issue with the 'normals' which controls how light plays on the surface. This is easy to change. Click 'Edit Polygons -> Normals -> Soften/Harden'. The difference between hard and soft is this - if a sphere has 'soft' normals (towards 180), it will appear to be smooth, if it has 'hard' normals (towards 0), it will appear to be a segmented sphere. So, making those edges have 'softer' normals should fix your problem (That is, if that is your problem).