The chrome-like polished stainless look is certainly not Japanese. It's what you see on cheap stainless wallhangers, chrome truck bumpers and mirrors.
The blades in ONR have the iron shader set to max, so they do reflect light sources, but in a more realistic way. (Thanks to mtarini for the specialty shader that lets us do both reflective surfaces and cutouts on the same object.) The coloration pattern is designed to work with this, to give the appearance of temper lines and grain, without using textures so large as to crash the computer (which is easier than you might think, with a couple hundred of those on the field, and since we can't use mipmaps with those specialized shaders). It took a lot of work (my work) to get that right. Note that you do have to be using DX9 shaders - the DX7 rendition is less than impressive.
Anyway, no, that is not a bug. It's just where we want it. I actually tried just turning down the reflectance on the super-shiny shader, and it did not get the desired effect either. And I refuse to send my samurai into battle armed with chrome truck bumpers.
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The samurai who could not be upgraded were originally from neutral locations. It was a known issue. The latest versions - i.e. my work file for ONR for .90x - have a completely reworked troop tree, so the point is moot. (You don't, however, want that work file ... the new troop tree requires a whole new set of outfitter commands such that you have to pay for gear to upgrade guys in shirts to armored troops ... and the outfitter script is not yet in place, so none of the samurai can be upgraded to the next level.)
The new work file also contains all the new crossbows, new low-end armor items, and a bunch of other stuff that has not yet been released.