Some styles do still practice in armor. Yagyu Shingan Ryu I know still does, and I think Katori Shinto Ryu still may. However, other styles which matured during the Edo Jidai when large scale warfare basically didn't happen anymore are more geared towards a duelling atmosphere, and train under the understanding of an unarmored or at most lightly armored opponent.
Gotta correct a few fallacies that people are laboring under ...
Both Yagyu Shingan ryu and Tenshin Shoden Katori Shinto ryu, among others, still retain armored training. However, it is only a small part of the entire curriculum. This is not due so much to the influence of the Tokugawa unification stopping large scale warfare. This is due mainly to the fact that the vast majority of sword work was expected to be done against an unarmored opponent. The sword was a sidearm only. It was only used in battles when everything else failed. Since it had only a small chance of being used in battle, only a small portion of training was devoted to this.
Our dojo is one of those that regularly engages in sparring using tsumeru techniques wherein the cut is pulled up short. This is only done with the most advanced practitioners, and it does lead to degeneration of technique. It's easy to see when watching it. I have personally used RSW type of sparring weapons, done sparring in kendo armor, and done Sports Chanbara. Each method of sparring is fun for its own reason, and each one requires a change in technique from what is supposed to be done. None of them can teach what is required as well as the kata, which leads me to my next point ...
There are many different "martial arts" with many different reasons for doing them, and many different things that can be learned. To learn to be a good boxer, you have to study boxing. To learn Olympic fencing, you study Olympic fencing, to learn how to be good at Sports Chanbara, you study Sports Chanbara. However, to learn how to effectively use the Japanese sword in the manner in which it was originally designed to be used, you will need to study a koryu sword art. Not because the koryu sword arts are necessarily better, but because they are the only ones which we
know are effective. Since no one engages in sword duels anymore, anyone can say that their "new and improved" sword art is better. There is absolutely no way to know if that's true. The techniques and training methods of the koryu sword arts were developed and perfected hundreds of years ago when the people studying them were regularly using their swords. The koryu sword arts are the only schools that have been passed down through the generations, teacher to student, with the techniques, methods, and instructions intact. Because of this, we know that they are effective. The same can't be said of any other sword arts. Guesses can be made, and opinions put forth, but it's all opinion as these other sword arts have not been used in large numbers of life and death confrontations. Many Western Martial Arts enthusiasts would argue that there are several different training manuals from feudal Europe from when swords were used. This is true, but only the manuals remain, not the schools and the methods which were meant to go along with the manuals. Add to that the fact that most of the Japanese manuals from that time frame are deliberately obscure, or include outright falsification of some things in order to prevent rivals from learning too much about them, (I can't believe the Europeans were any different in that regard) and any certainty about how effective learning from these manuals is has fled. A common point between all of the koryu sword arts is the fact that they all train in the same manner,
through kata. There are solo kata and paired kata. There are also a couple of other things that are done occassionally, such as the fukuro shinai in Yagyu Shinkage ryu. However, the main training method in
all of the surviving koryu is kata. Since i seriously doubt that the folks that depended upon their training to preserve their lives would
all embrace an inferior method, I have to conclude that kata is the most effective method of training.
In conclusion (finally!) all the different arts are fun, and they all have something to be gained from them. It all depends upon what you are trying to gain. If you wish to learn how to spar, then sparring is really the only way. Will this teach you how to effectively use the sword as it was originally intended? No, it will effectively teach you how to spar. Is this a bad thing? Not at all. As I said, it all depends upon what you wish to learn.