OK, lost what I was originally posting. Short version: the Armor doesn't help the Traitor here, so xe could keep it. The Warrior simply weakens the Traitor, rather than damaging xyr.
The Armor reduces "physical damage", rather than any loss of Might or Speed. This came up in the errata. Here's the link: http://www.wizards.com/default.asp?x=ah/faqs/hoth
The second point under "Item Cards" is the answer:
Armor -- If something specifically states lose 1 speed (such as a room roll failure or an item side effect), is the armor able to prevent the damage?
No. The armor doesn't protect you from things that cause you to lose Might or Speed (such as a loathsome illness). It only protects you from things that do physical damage, such as combat. It also doesn't protect you from having other items stolen through combat if someone beats your roll by two or more.
Sorry to bring the bad news. Here's hoping all involved enjoyed the game anyway, since HotH's balance has been known to swing from game to game.