Hello Samantha,
Clearly you are flexible somewhere within you as you went to a yoga class when you could have opted not to. So perhaps you are flexible of mind and that is far more important in a robust yoga practice than flexible anatomy.
The arms should not dangle. Ergo they can be on the floor, a block, or the shin bones. Yoga is a counter to our living. Since we live upright the hips compact and the arms dangle our whole lives. Therefore in yoga we work to traction or decompress the hip joint and compact or secure the shoulder joint. Additional hanging of arms is not necessary or warranted.
Many students in this pose are so attached to keeping the legs straight that they bend in the spine (though even in the full pose there is some rounding in the spine). Bending in the spine places stress on the weaker links of that organism. So I would prefer you flex the knees slightly in this pose until such a time as your hamstrings are more open, your pelvis more mobile, and your practice more developed.
The weight of the head serves to traction the spine toward the ground in order to create or explore its length. Find the weight of your noggin and as mentioned above, continually release the tension in the neck [I]so that[/I] the crown of the head directs toward the earth.
Namaste,
gordon