Worm

I always see these white arms spread out but have never seen where they came from. This fellow set up his home right out in the middle of a reef and for the first time I could see his hole/home. Any idea what kind he is?

Yup, those are the very typical tentacles of a terebellid polychaete. They're commonly called spagetti worms because of the resemble to limp noodles. Most terebellids have these white translucent tentacles. Some have colored or spotted tentacles but they're not unique enough to help put a name on the animal.

The first link is a anterior close up I made of a terebellid from the BVI; the second is a whole animal from Washington state.

http://www.nhm.org/guana/bvi-invt/bvi-surv...rm-09/h0797.htm

http://depts.washington.edu/fhl/zoo432/fal.../terebellid.jpg