I think that plot twist (the murder) is part of Potter's overall concept that Arthur the dreamer blunders his way through life, destroying the lives of everyone he touches. Remember in the diner, how Arthur calls the accordion man a "pansy" for kissing his hand? That slight on his manhood may have been the last straw for this (as you say) "sexually frustrated loner"--it may have driven him to thoughts of sexual conquest to "prove" himself. Note also how the accordion man echoes Arthur when he grabs the blind girl, initially to offer her food: "You can have it!" (Which is what Arthur said to him in the diner). I think that line of dialogue is meant to connect those two scenes in our mind: Arthur's sexual obsessiveness has infected the mentally unbalanced AM, who (in a way) acts in his stead.
Also, Arthur's meeting with the blind girl (when he called her "the most beautiful young woman I've ever seen") may have helped bring about her death by making her more trusting of strangers. Notice that when she stumbles against the accordion man in the alley she doesn't immediately get up and run away: she reaches out and touches his leg--perhaps remembering Arthur. These are more than just coincidences, I think. Arthur wanted to have sex with her but posed as a protector. In a sense, he set her up for the accordion man.
The miniseries hinted strongly that the AM was a sort of dark twin (or doppelganger) of Arthur himself. Remember the scene when Joan is out walking with a friend and they pass the accordion man--and Joan shudders and tells her friend that she just had the weirdest feeling that it was Arthur they passed? The (stuttering) accordion man seems to embody (more or less literally) all of Arthur's most frustrated, inarticulate, dangerous desires. It suggests that Arthur's dreams are not so innocent; there's a real selfishness and ruthlessness behind them.
I too wish that the movie version had included the scene of the AM in the flophouse, tortured by his guilt. That song ("Serenade in the Night") was one of the best in the whole miniseries. If Ross did film it and then cut it out, that's a serious loss.
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