Call your mortgage broker is right. Yes, if you refinance, you pay off the current mortgage with the new one so its considered prepayment. Prepayment penalties are common but usually they're 2 or 3 years even on a longer ARM. Make sure to verify this. We have a 7/1 ARM with a 2 year prepayment penalty. We knew we'd stay for 2 years but not likely 7 so we went for this.
One thing you want to consider in the ARM vs fixed is rates. Many of my posts in other thread have stated my belief that rates will go down in the near term and I do believe this, the gov't has cut the prime rate which has not been reflected in mortgage rates yet. While the correlation is not 1, its high between these rates. But even with a 2 year prepayment penalty, its impossible to forecast that long into the future. So if you're credit is so-so and you're taking an ARM to get a better rate now, and WILL pay everything on time to improve your credit score, then its probably a risk worth taking because even if rates go up, if you improve your credit score, your rate could still be less. I'm mentioning this because I believe you've posted in the past about your credit being so-so and worried about getting a mortgage.
So in summary, if you need ot work on your credit score anyway, I think the ARM isn't a bad idea assuming you do improve your credit score. If not, rates are still good, although not at historic lows so it may be worth locking in now.