Try to move the atoms in your hand in a coherent direction to do something.
Now try to do the same with the atoms of air next to your elbow.
That's the distinction, and it is not arbitrary.
So essentially you have come up with a rule that defines individual things based on movement (or maybe control?). Would a rule based on temperature be just as valid? Why is your rule valid and not any other? If it turns out that no rule is any more valid than another, then any choice of a rule is arbitrary. If you try to program a computer to take an image and draw lines around "things," you will find that there are many ways to do so, none of which would perfectly agree with every human.
If we zoom in to the atomic level on your hand, there will be atoms of dead skin cells next to atoms of air. Skin cells are constantly falling off of your body, and there is a constant flux of various atoms into and out of your skin. The concept of a thing requires some geometrical boundary between one thing and another. Where would you draw this boundary around your skin? 1 atomic radius outward from the outmost atom of a skin cell? How do you logically define which atoms belong to a skin cell then? If a cell falls off your body, how far away from the rest of your body can it be before it is a separate thing?
If spatial boundaries between things seem hard to define, what about temporal boundaries? For instance, all life on Earth is a constant replication of cells. Cells from your parents combined and formed you. Your parents are continuations of cells from their parents, and so on. There was never a point where one could clearly draw a line saying these cells are one person and the cells before it were another. Any choice of such a boundary would be arbitrary, unless you can provide some non-arbitrary reason for one. Some people say life begins at conception, but why draw the line there? Why draw any line at all? Out of usefulness for humans to be able to talk about things, sure, but there is no such thing as usefulness to the universe, and boundaries based on usefulness to humans are arbitrary.
It's amazing. Something you said actually made sense. I suppose it had to happen some time.
Can't tell if serious...the observer effect has nothing to do with humans. Consider a thermometer in a cup of water. This thermometer is "observing" the temperature of the water. However, the temperature of the water is different now that the thermometer is interacting with the water. What would the temperature be without the thermometer in there? We can't know, because you have to measure something to know, and thus affect the system. This is essentially what the observer effect with regards to quantum physics means. It has nothing to do with consciousness or the mind-body problem.