"I guess what I'm trying to ask is: how and why do we decide which arms are and aren't allowed under the 2nd Amendment?"
If it is considered a "one person" weapon, such as an individual soldier would carry. It should be allowed. "Arms" inplies military weaponry. I will backtrack a bit and say that keeping "fully automatic" weapons (machine guns) or shoulder fired antitank weapons, etc. is proper. However, the semi-automatic versions (what really counts) of all single user military weapons should be available to the public. I think you should be able to possess an M16, and its variants with all features, except it should be limited to semi-auto fire. There should be no limits on magazine capacity, etc. Except when those arms are used for hunting - which most modern military arms are useless for. That is my opinion.
And what constitutional understanding forms your opinion concerning semi vs. full auto?