See the 3 pattern pieces on this page? The one on the left is the body, and it has the armhole in it. Then the one on the right is the sleeve-- see how the top of the sleeve come up and around? That is what you're trying to accomplish, but I don't know how to do it without a pattern. The problem is the you're picking up the sts around the arm hole and just proceeding to knit, so that it's as if the top of the sleeve were a straight line, instead of that curve.