This page is intended to give you the basic knowledge you need to setup your Fender Mustang.
The Mustang uses a unique tremolo known as the Fender Dynamic Vibrato. It is a very sensitive tremolo capable of bending the pitch many steps. However, if setup correctly it can be made to accommodate subtle playing styles. The tremolo should be adjusted so that the tremolo arm can sit comfortably in your hand while playing. For most people this means the arm will be parallel to the body of the guitar. To adjust the projection of the arm two things can be adjusted. The first being the height of the tailpiece. A 3/32" allen wrench fits into the two small holes on top the tailpiece to adjust it's height. The higher you set the tailpiece the farther towards the bridge it will lean. Adjust it lower and it will lean farther back. The second function for adjusting the tailpiece angle is by moving where the springs attach to the posts. Remove with tremolo plate from the guitar to access the springs. You will see there are two notches on the end of the tailpiece posts. The far notch will make the the tailpiece lean back, the higher notch will decrease the tension causing the tailpiece to lean farther forward. Adjusting both the tailpiece height and the spring notch to balance stably with whatever strings you choose will allow you to set the tremolo arm however you find most comfortable.
The Mustang uses Fender's floating bridge design. You may have noticed that the bridge shifts around as you use the tremolo. This is part of the design and enables smooth action of the tremolo. It is similar to the Jazzmaster/Jaguar bridge, the only difference being the saddles. The saddles are a fixed height matching the radius of the Mustang fretboard. The height of the bridge can be adjusted to set the action to your preference. A 0.05" allen wrench fits in the holes on the side of the bridge to raise or lower the bridge.
The Tremolo Arm
The tremolo arm is attached to the tailpiece of the tremolo and held in place with the grub screw on the end of the tailpiece.
1967 Fender Service Manual - from Jim Shine's website.