yeah, from this visual it doesn't seem a low poly problem. Are you sure you're exporting both meshes and skeleton and both are in object mode?
Another try: open it in blender 2.62 and export it as iqm.
As I already said, this problem happened to me but only with blender 2.49 ad I don't remember how I fixed it

I didn't understood leilei's hint
EDIT: an idea! Have you weighted correctly your bones? I mean: have you tried, with just an arm as example, to paint weights 1 on the tip of bone1, 0,5 in the middle between bone1 and bone2, then 0,5 for the middle of bone2 and 1 for the tip of bone2? Because it seems that the torso deforms correctly