Unfortunately there is a bug that causes a problem later on. It is fixable on the PC. And in theory not game breaking.
This is from the wiki bugs section, I deleted a few very minor spoilers. But the key is that there is a point where it is helpful if Martin puts on some armor.
* Getting the Great Welkynd Stone prematurely. It is possible to acquire the Great Welkynd Stone before even reaching this part of the main quest. If you pick up the Great Welkynd Stone, it is permanently kept in your inventory as a quest item and Martin will immediately take it from you. However, giving both the Armor of Tiber Septim and the Great Welkynd Stone to Martin at the same time results in a glitch that, while not game-breaking, will be a great hindrance later on in the main quest. With both items in your inventory, there is no interruption in the dialogue between handing the two over, causing the script where Martin [minor spoilers deleted]
o Before you give the Armor of Tiber Septim to Martin, you must remove the Great Welkynd Stone from your inventory, using the command player.removeitem 000345AF 1 to remove it. After handing over the armor, use the code player.additem 000345AF 1 to return the stone to your inventory. You will get a journal entry; Martin should don his armor, then talk to him again to turn over the stone.
o Another workaround is to type player.setstage MQ12 30, causing Martin to don his armor. (If you want to get all the journal entries, you can instead type the following three commands: player.setstage MQ12 10, player.setstage MQ12 20, and finally player.setstage MQ12 30).
[deleted]
o On the Xbox 360 or PS3 versions of the game, the best surrogate workaround is to reverse pickpocket permanent Bound Armor and Weapons into Martin's inventory
o PC Only This bug is fixed by the Unofficial Oblivion Patch.
The full text is here:
http://www.uesp.net/wiki/Oblivion:Miscarcand_%28quest%29#Bugs
And if you want the minor spoilers, it's helpful if Martin puts on Armor because
Spoiler you need to keep him alive during the battle for Bruma, and it's easier if he has some armor on.