However, with this particular card, the player is being rewarded after a challenge. I would argue that the fair thing to do would be to have the player ignore that particular item and keep drawing until something compatible is revealed.
I don't think it matters. You're still getting a reward. You can choose between the new armor and the armor you've already got. I have seen several times in a game when drawing a "reward" from the Item deck never really pays off due to a crappy draw.