This unit is a reject. Return it for a replacement new saw. Not even a factory re-built should be as bad as your pictures.
There must be absolutely no side to side motion of the blade during the up/down stroke. There could be very a limited amount of front to back motion during the full cycle of the stoke as well; front to back in the range of 1/32" or less. Use a very small square, and manually walk the saw with blade thru a full cycle slowly and verify the blade remains a constant distance side to side and very little movement front to back. Blade must remain at constant angle to table.
Don't care about price range, the above must be for a scroll saw to perform as intended by the buyer. Implied warranty and all that.
However, don't confuse viewing blade by the strobe effect from florescence lights with side to side motion. Without any wood to cut, the blade will flex with vibration on any scroll saw. Loading of the blade into the QuickSet II blade holder is a common cause of front to back motion of over
1/8 inch or more.A scroll saw comes from the coping saw. Fine detailed work. It needs to be a precise to function correctly. What ever the price. Compare with a cheap router, would you accept a router that had a 3/64 inch wobble (runout) in the main shaft? I don't think so. Would you accept a cheap router where the collet locking nut had two of the six corners rounded over? I would hope not.
At least contact the Service web site and find a Service Center to see if you saw's warranty can replace the upper arm assembly.
Aside: When checking for quality scroll saw, an overlooked but very important test is the flatness of the table outside edge to the center. Too many times at the factory, the center hole for the table insert, is punched. If an error in production occurs they will re-punch the hole, causing the center to deflect. Re-punching the hole is a cheaper repair than other fixes. Straight edge test should allow less than piece of newspaper. (Really long post as to why this table top gap is so bad. ) Remember, test outside edge to center, without the insert.
Phil