MathOverflow will be down for maintenance for approximately 3 hours, starting Monday evening (06/24/2013) at approximately 9:00 PM Eastern time (UTC-4).

The answer is that you have to apply another primitive recursive function after the $\mu$ operator. Specifically, the Kleene normal form is that every recursive function $f$ has the form $f(n)=U(\mu x T(e,n,x))$, where both $U$ and $T$ are primitive recursive. The predicate $T(e,n,x)$ asserts that $x$ is the code of a halting computation of program $e$ on input $n$, and the function $U$ extracts the output value from this code.
It is the step involving $U$ on which your proposed argument foundersflounders.
The answer is that you have to apply another primitive recursive function after the $\mu$ operator. Specifically, the Kleene normal form is that every recursive function $f$ has the form $f(n)=U(\mu x T(e,n,x))$, where both $U$ and $T$ are primitive recursive. The predicate $T(e,n,x)$ asserts that $x$ is the code of a halting computation of program $e$ on input $n$, and the function $U$ extracts the output value from this code.
It is the step involving $U$ on which your proposed argument founders.