He did challenge it by pointing out that Kerry voted against funding the troops.
He did point that out, but he didn't specifically mention body armor was in that appropriation, and it wasn't in response to Kerry's accusation. It was a different part of the debate. He should have hit back hard there. It's unbelievable.
I thought the reason he failed to mention it at the time was because Lehrer didn't allow a rebuttal. Unfortunately I watched the rerun and that was not the case. There were several missed opportunities however the rapid fire BS coming from Kerry was difficult to keep up with. No doubt when he rode home, he kicked himself for not responding to half of them.