Are you sending "arg1" as a query string parameter or in the body?
If you are sending "arg1" in the body, did you include any other protocols (filters) in the VSM's Listen Step? (e.g., JSON or XML DPHs)
The REST DPH only processes the request URL including {URLPARAMs} and query string parameters..
If "arg1" is in the body of the request, the JSON or XML DPH parse this value out and add it to the argument list.