i think, your arms should be stright , and your shoulders should be shrugged against your ears, theres a really good explenation on http://www.beastskills.com/Handstand.htm
Beastskills is a great site, there's tons more on there than just handstand. I would take his advice because if you look around, there's plenty about him doing free handstand push ups.
Yeh I've emailed him a few times. I was realy surprised he emailed back as he probably gets a lot of emails. I dont like bothering him too much though. I was asking about the handstands because on tnation I read an article 'in defence of overhead lifting' that said keep the shoulders in the sockets while pressing. So the latts are used but handstands must be different. http://www.t-nation.com/portal_includes/articles/2006/06-142-training.html