First of all, as R’Moshe explains in that very teshuva (although there is another one where he gives a longer explanation), the chiyuv to cover hair is not what makes hair erva. Hair only becomes erva if people actually cover it (so today, unlike when that teshuva was written, in most frum communities hair would be erva).
Second of all, R’Moshe does not say that most frum women uncover their arms, he is talking about a case where there are some frum women (or at least women going to shul) who have uncovered arms.
Finally, R’Moshe is discussing davening in front of uncovered arms, not whether or not the women themselves are allowed to walk around that way (i.e. in the market, not in shul). I don’t think R’Moshe means to argue on the mishna in Kesuvos that clearly states that covering arms is Daas Yehudis.