Update: Armor upgrades actually seem to have been intended to work as I have described. The partially unpacked units_desc file reveals an additional line that lists the amount of armor a unit gets when it is upgraded. For mailed knights this is 5, 7, 0, 0. 5 is their base armor (light mail), 7 is their upgrade (heavy mail), the two 0 means they cannot be upgraded further. For Byz Lancers it's 5, 7, 8, 9, meaning they get 3 upgrades and can max out at partial plate like katatanks.
Edit: The code is commented out, so it's not working properly. I still say someone should ask the devs what the deal is.
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