Sorry but without actually being there I cannot say what exactly the problem is. Your arm assembly does look complete.
I have never run one on a hose so cannot say if it should rotate.

I would take it apart and see if a piece is worn where it would slow down the arm when water pressure is applied.

When you had it on the hose did water come out of both angled holes on the end. These are the ones that cause rotation.
I have seen where junk will get in an arm and plug it only when there is water pressure. Once pressure is removed the junk falls back into the arm so you cannot see it.

Do you know if the upper rinse arm (item 3 Section 12 ) works.

Here is a manual which should help pull the pump apart so you can check it.
http://appliancejunk.com...&id=234;t=1336642347

I would check the following first.

The rear water feed tube has two openings for a top tray that moves up and down. Check that the unused one is sealing correctly.

Often low water pressure is due to low fill. Most units fill to just under the heating element.
An easy way to check this is to add a couple quarts of water after a fill to see if the arm will spin. Just be careful to not overfill it.
If it is low fill then most likely cause is a partially plugged screen filter on the input side of the fill valve. Remove the valve and check/clean it. Do not permanently remove it as it is there to keep crud out of the valve which could hold it open and cause a flood.

Here are your parts
Replacement parts for Whirlpool KUDI01FLSS2 UNDERCOUNTER DISHWASHER | AppliancePartsPros.com

The screen is Item 1 in Section 9.
Also there is a filter on the chopper Item 6 in Section 9.
When you click on a part's picture often another page will open with more info and a Q&A section.

There really is no way to check with the door open, water would get everywhere.

Often if you open the door during a cycle you will see the arms still turning.

Have you checked for low fill?

You were right. There was a piece of plastic caught in that filter which popped the blade and restricted flow. I bought the Kitchenaide special service plan for $267 which covered all parts and service for 1 year. I don't think he was in the house for more than 1/2 hour. He zeroed in on the problem and got it running perfectly. The service plan is a win win for everyone. The motivattion is to do it right and do it quickly. Thanks for all your advice. -Murray