Untouchable is not wearing any armor. Interestingly enough, the challenge doesn't include the shirt and trousers you start with. These items are not part of either armor class and give no armor rating. Was the belt a Rope Belt? If so, we may have a solution for Rope Belt gives no armor.
And we have the solution. No armor bonus means no armor in the challenge terms. If I recall correct, the challenge didn't actually mean armor, it meant armor rating. And since rope belt gives no armor rating, the challenge isn't failed.
Two days and they are still here... I wonder how long it takes to completely sidetrack the entire topic. (sapientCrow, why don't you change the name to "How does the challenge untouchable work + discussion in theology spam and semi-intelligent bots".)