Yep - it's the little round bit that actually goes into your crank arm

CA

PS - if you're having trouble with a bolt, sometimes it helps to try an allen key with a longer handle. More leverage (though I've been known to whine to my LBS for them to get something out that was particularly stuck).

PPS - Just re-read the original post - you generally do not want your arms locked. They should be somewhat loose, and (at least on a road bike), there should be about a 90 degree angle between arms and torso when riding (hard to measure for yourself) In my experience, you have a little more room to play on a hybrid because not so much weight rides on your hands.