Quote - I'm also thinking that maybe the fact that the under arms are touching the dress and that is corrupting the simulation.

This is almost certainly the cause of your problems.
Start the simulation with the arms straight out to the side, and set the final pose in frame 10 (or so).

Adding vertices to the constrained group in the underarm area may help if you don't want to adjust the final pose.
You could use Poser's collision detection to determine how to adjust the final pose to make sure the arms don't trap the cloth.