Here's another thread:
http://www.twcenter.net/forums/showt...eapon-Upgrades
It seems like the +2/2.5 theory comes from Lusted's testing. I've never seen any detailed test data, but it looks like most people believe him.
I did some quick tests, pitting Eastern Chivalric Knight with +1 armor against regular Chivalric Knight (which has +1 shield more than the Eastern one). The Eastern ones seems to be consistently slightly better, and the difference between +1 armor upgrade and +1 shield feels to be greater than just the mere advantage of armor over shield in melee combat. +2 to 2.5 armor per upgrade feels correct to me, but I haven't done enough tests to confirm.
Also, I think it is highly unlikely that the visual/narrative explanation is correct, simply on the basis that the armor values of each unit is arbitrarily set in the desr file.
The armor upgrade difference is definitely not as noticeable as the weapon upgrade difference. With the weapon upgrade, you can see that a swordsman militia with +1 weapon consistently dominates sword and buckler men, despite having an in-game-display deficiency of 2 in overall attack/defense.