The units would be affected. The armor states nothing about a hero's units being unaffected.
I'm not so sure. With how literal UG has been when replying to all the other questions...
The Demolitionist says the hero is the target. Since the armor says the hero is not affected, then the Demolitionist has no target anymore.
I know it doesn't make the most sense, but then some of UG's other answers haven't made the most sense to me either.