Alrighty then.  Now that we have our awesome "arm".... being just a cylinder with 2 bones.  Lets add a muscle bulge using Muscle bone. :-)  Firstly select your cylinder, or your arm mesh and hide it for now.  And maybe even freeze the bones so they don't get in a way.  Now, create your muscle bone.  Like in the picture below.  I made the muscle bone red in color so it's easier to see which once are muscle bones and which once aren't.
                                          
I'll call the parent red bone "muscle" for now.  You can call it whatever you like.  And I'll call the small diamond red bone "muscle_end".  Now the idea behind a muscle bones is that the "muscle" bone will be linked to the "bicep" bone and the "muscle_end" bone would be moved by the "forearm" bone.  And in effect the "muscle" bone will squash and stretch like a muscle.  The problem is that we can't just link the "muscle_end" bone to the "forearm" bone, or else the hierarchy in the muscle bones will be broken and the "muscle" bone won't be squashing and stretching.  So to get around this we'll fiddle with the muscle bones controllers and add a few helpers to err.... help us. :-)

We'll start by adding a helper point.  Name that helper point "muscle_point" or something like that.  Now make sure "muscle_point" is selected and use align tool to align it to the "muscle_end" bone.  Under Align Position(screen): check all X,Y and Z Position.  Choose Pivot Point for both Objects and check all X,Y and Z for Align Orientation(Local).  Hit OK.  You should have something like the image below.

                                             

That point helper we just made will be linked to the "forearm" bone and will drive the squash and stretch of the muscle bone.  Don't link it just yet, let's set up the muscle first.  So, select "muscle" bone and go to Motion Panel.  Assign "LookAt Constraint" to it's Rotation Transform.  Click on "Add LookAt Target" and select the "muscle_point" helper.  Now under Select Upnode: uncheck "World".  A little button next to it will be available which will say "None" on it.  Click on that button and select the same "muscle_point" helper again.  This is very important, if you don't do this, the muscle won't follow the arms rotations correctly when your character makes a turn or rotates it's torso.  The image on the next page will show you what I have in my Motion Panel for "muscle" bone.