Same as above. He is talking about high end mercenaries, people who are extremely wealthy, and the like. Like the Silver Blood Clan. Controls most of the silver in Skyrim using mostly slave labor and their gear is equal to that of bandits.
For the nord jarls etc. it's probably a matter of national pride. Plus they'd want to show their subjects that they're wearing local clothes and armor.
- I've run into mercenaries in Dwarven and Ebony armor myself.
- If you go to an orc stronghold like Mor Khazgur, the orcs will be mostly wearing orcish armor.
- The Empire probably has regulations for the armor its troops can wear. etc. etc. etc.
I'd say that the designers were much more aware of what armor makes sense on which NPC, than they were in Oblivion.
For most of the world, even Tamriel, a sword is a sword is a sword. Dwarven swords etc. are expensive curiosities or the weapons of heroes, which few people have experience with, so their benefits might not be readily apparent. Also, jarl's housecarls etc. would have their weapons and armor "improved" to the max since they have access to the best smiths. It's just an oversight/cut due time constraints by Beth that they aren't. Perk-improved steel armor is completely usable against any enemy, so there's no pressing need to use exotic materials. Which is as it should be.