I don't know of any way to keep the arms from stretching when using the dragger to move them. And changing the arm position to straight down generally causes the body to distort when dragging the arms. There are, however, alternative ways to move the arms (or legs) to prevent distortion. I sometimes make the arms a separate puppet and position it in the scene with a body puppet. Then I can use the transform controls on the arms to rotate or scale. You could also use arm cycles as another way to move arms without distorting.
Under Dragger on the right you can change the arms to "Hold in Place" instead of the default "Return to Rest" for them to stick. You could drag them both down, record one second, then extend the takes by dragging the right side of the bars in the timeline.
No way to limit dragger bending (yet).
Thanks a lot!