Ok here goes:

1. Create a half-sphere and position/stretch it where the muscle should be.
2. Parent the muscle to the shoulder joint. Make sure that it follows when you rotate the shoulder.
3. Use SDK to make the muscle bulge when the elbow joint rotates (using the muscle's scale and the joint's rotate attributes). Test it by rotating the elbow joint.
4. Select the ARM surface THEN the MUSCLE surface (influenced object followed by influence) and go to Skin -> Edit Smooth Skin (assuming that you've used a smooth bind) -> Add Influence.

That should do it... Hope it's useful... This is my only experience with Influence Obj's though, so please don't rip my head off if it doesn't work