Sometimes it takes a while for your skin to catch up with your weight loss. Also, when you say you are doing upper body work, are you lifting heavy? Doing upper body work should help you shape your arms somewhat rather than them looking twiggy. Specifically bicep and tricep work will help your upper arms and don't forget shoulder work
Are you doing upper body and lower body weights every day? Your body does need a rest between weight workouts of the same muscle group.