In the late 80's, I was interested enough in artificial intelligence to take several classes in philosophy of mind; then and since, I have never been able to distinguish Searle's Chinese room argument from plain dualism. (The apparently separate idea of "biologicalism" that I've heard from some about Searle and (sort-of) from Penrose don't make any sense to me.)
Nothing in Searle's argument suggests that consciousness isn't physical. If anything he is less of a dualist than his functionalist critics, since he sees consciousness as being inherently tied to specific kinds of physical system.
>The specific argument suggests a tiny homunculus who lives in your head and and understands English.
I don't see how you are getting that from anything Searle says.
> The biologist argument requires something special in organic chemistry, something unknown, that is incompatible with other physics?
We can't know at our present level of understanding whether or not it will be compatible with current physics. But anyway, perhaps current physics will need some revision before we can understand consciousness. It's hard to rule out any possibility at present.
Searle is expecting you to reject the idea that the system understands Chinese, from your common sense intuition. In his view this conclusion is obvious.