I have (had) a Serpent Starfish. I noticed the legs disappearing then all totaly gone now I can't find it. Noticed what looks like a baby Serpent Starfish in a hole in the live rock. Could it had given bith and lost its legs?
Sounds like a crab or other predator. Same thing happened to me once. It turns out that a crab that started out the size of a dime turned into a monster and decided to sample the serpant star. Look for it when the lights go out.
Serpant Stars tend to drop their arms when they are sick or stressed. Try to target feed it to help it recover. The small star you see in the rock are just that and are a good members of the clean up crew. They come as hitchhikers in the rock.
How long did you have it? Sounds like an acclimation problem. Stars, snails, etc should be drip acclimated over several hours. I drip acclimate stars for 8 hours or so.