Hmm, none of that is good.
I would check the needle bearings and their sleeves for signs of wear and/or lack of lubrication while you have the saw torn down, and replace/regrease the parts that need it.
Hopefully it is just dry as a bone and you only need to grease it, as opposed to having to replace badly worn parts.
Arm should not be tight, so make sure that it moves freely after reassembly. I have heard some people say that they tighten the arm until it stays up on its own, but that is a no-no. There are several products out there that hold the arm up (I use "The Lifter" on mine, and love it) so that is the way to go in regards to keeping the arm up.
I have a Type 1 from 1997 with all original parts, and it purrs like a kitten and still looks like new inside. I keep it well greased and properly tensioned, so that goes a long way towards keeping it running smoothly.
