I agree with Court on both counts. Talk to a personal trainer about how to tone and shape your body through exercise. Pilates might be a good idea because it creates long, lean muscles rather than dense bulky ones. However there's only so much you can do. If you have a stocky or curvy build you will probably never have model-thin waif arms. The only people I know with those kind of arms have an ectomorph build. Mesomorphs (athletic) and endomorphs (curvy) simply don't have that sort of body structure.
It sounds like you have a mesomorph's body. Rather than fight nature it might pay to look up famous and beautiful mesomorphs. Demi Moore, Anna Kournikova, and Halle Berry are all mesomorphs and they're gorgeous! Who would want super skinny arms if you could look like those ladies instead?
For the record, I feel your pain. I have an endomorph shape, which means my upper arms and thighs are always going to be significantly larger than my lower limbs. I'll always be curvy rather than slight. Rather than being upset that I'll never look like Kate Moss I try to take comfort in the fact that I can look like Marilyn Monroe instead.