Part of the problem is that arms is still seen as the PvP spec and has quite a few tools that, if combined with fury levels of damage, could prove extremely dangerous. I'm actually hopeful that Cataclysm's changes to warriors will alleviate this to some degree. In a sense, removing the importance of the Mortal Strike healing debuff by increasing everyone's health pools and lowering the healing reduction could end up being a good thing for arms warriors in PvE, since arms burst in PvP won't count twice anymore. The old saw is that with the MS debuff, every point of damage an arms warrior does counts double, which is true as far as it goes... It would be more accurate to say that as long as an arms warrior can keep the MS debuff up, every point of damage his or her entire team does counts double -- making arms dangerous when paired with classes that can do actual sustained damage.
Remove this crutch and the hobbled nature of arms becomes much clearer to see. All of arms' danger in PvP comes from high burst (MS crits, Bladestorm), mobility and the debuff. Kick the props over, and arms' weakness becomes apparent; it simply can't compete in terms of pure damage. Since arms is based around bleeds and procs, is highly reliant on ArP and doesn't gain nearly as much from HS/cleave spamming in high trash fights, it simply hasn't got as much to offer as DPS in PvE. Sure, an arms warrior can provide increased physical damage to the entire raid, but so can a combat rogue, and a combat rogue is putting out 2.5k more DPS (and far, far more on melee friendly fights). If you're choosing between those two classes for that debuff, you're going to pick the rogue no matter how much the arms warrior "knows what he is doing." The temptation would be to say that if the warrior knew what he was doing, he would have rerolled fury.
Frankly, that's not the answer. A class with two DPS specs shouldn't have one that is head and shoulders above the other in PvE. It also shouldn't have one that is completely dominant over the other in PvP. I understand the difficulty with this kind of balancing act, of course, but it still needs to be addressed. The answer to the question of what arms needs in PvE is unquestionable: they need more damage per second.
What I said last week still holds true: when Cataclysm launches, I expect it will lead to a period of warriors underperforming, especially as DPS. I don't enjoy this prospect, but for arms as a PvE spec, I think this might ultimately be a good thing. With fury no longer serving as the "good enough" DPS spec entirely because it manages to exploit rage better, any buffs to increase warrior DPS that will have to come following rage normalization will help.
I'm neither expecting nor asking for anything before the expansion, of course. And looking at the proposed expansion changes to the class, I'm mildly hopeful that arms will get the tools it needs to be competitive DPS in Cataclysm. With the reduction in rage gain, and abilities like Gushing Wound and the arms mastery adding armor pen (making arms the only warrior tree with the ability to passively penetrate armor), the basic toolkit to make arms competitive exists. I'm not sure exactly how much work would be needed to get arms up there with fury (assuming fury doesn't just drop down to arms levels), much less other hybrid physical DPS, but it should be within reach. It's clear that in PvE right now, arms isn't there and hasn't been there for most of this expansion. (The last time I can remember being able to raid competitively as arms was in Ulduar.) It is my opinion that arms' woes are entirely due to its having all the vulnerabilities of the current rage generation model without the benefits of runaway rage scaling. Therefore, for once I can honestly say, I hope Cataclysm can fix this.