The issue is mostly of visual illusion. The high-contrast Gestalt style of rendering in this piece destroys middle shading (which one would use to sculpt the arm into appearing foreshortened, especially at the top of the hand and the far end of the connection between upper and lower arm), and as such the foreshortened arm appears flat. I am not sure if I should, and how I should, address such a problem without compromising the rendering choice.
edit: this pondering led to edit above anyway. Tell me if things look clearer and if the hand trick worked.
To me the problem is not with the foreshortening itself, but rather with the whole arm. I think I know now what did not look right to me in the original picture:

Now I understand that the part I have marked in red is the back part of the arm, whereas I originally interpreted it as the back/side part of the T-shirt, so that the arm was effectively reduced to just the bright part. However, even now that I consciously understand the shapes, still my perception is affected by the undersized-arm visual effect. Maybe it is because there should be no shadow (i.e. dark part) on the upper arm. I think willfaulds has done a good job towards a solution of the problem (although I'd rather avoid the vertical outline and let the volume be implied by the shadow of the elbow).
As for you new edit, the shadow on the hand looks inconsistent with the page it is holding - now that I think about it, shadows don't look consistent everywhere... if I have time, I'll explain better what I mean later (sorry, I'm in a hurry

).
saimo