As far as I can figure, it's embroidery. This is the best picture I could find: it's a huge image, so you can get a very detailed look at the emblem:
If you don't want to do the embroidery yourself, I'm sure you could take the costume and a really good color image in to a place that does it professionally. As long as you mark very clearly where you want the embroidery, they should be able to do it. I was planning on doing this myself, but then a friend of mine who does embroidery offered to do it herself in exchange for help on her costumes.
Actually, this is a really good site for large images of the Inuyasha cast. They're mostly scanned from magazines and promotional art, so the quality is really high.
As far as the armor goes, rollerblading pads might work, at least as a base. I'm planning on using either a really strong paper mache or Wonderflex (depending on my budget) for the elbow, shoulder, and shin guards myself, and then painted craft foam for the stomach and back guards. Since the stomach and back need to bend a little (otherwise sitting will be impossible), they need to be flexible.
I'm actually using the plastic part of a skating kneeguard as the base for my poison-shielding mask. It's the prefect shape and size, so with a little painting and a few sculpted additions (like the flower-shaped parts for the strap attachments), it'll be perfect.
I'm using the inserts from a pair of rollerblades as the bases for my boots. Since Sango's boots are flat-soled (no heel), I'll use the liners and cover them with fabric to match my leggings.
Why yes, it is my natural hair color, darling!
Working on: Sakura/Syaoran/Tomoyo fall uniforms, Ashitaka
Ashitaka (Princess Mononoke); Sakura Kinomoto (Cardcaptor Sakura)
Autumn '08/Aki Con
Ryoga Hibiki (Ranma 1/2); Shura!Sakura, Jade!Syaoran (Tsubasa: RC); Kokon (Kon Kon Kokon)