Here is the arm completely disassembled laid out in order of how it would be reassembled.
Here is the washer that I pushed a new hole through. The smaller piece was wedged inside one of the two arm sections as you can see in the first photo.
Here it is reassembled with out the small hole piece. I might try to get Manfrotto to send me a new orange washer.
The metal piece that sits inside the knuckle has a indentation in it to hold the ball bearing. When you tighten the arm, you cause the bearing to move up out of the indentation putting pressure on the long pin and the piece at the end which puts pressure on the ball. If the part in the nuckle doesn't go back out, then the arm will fail to work as it had for me.