I had a quick question concerning this topic. It appears that the only armor that this unique Imperial feature can be done to is with looted armor and weapons that are not enchanted or enhanced in any way. Is there no possible way to convert more specialized (ie: sharpened, sturdy, exploration etc.) armor and weapons?
In a rather convoluted way, I also found a way to get Imperial armor (which I really like) to my main character who is a higher level Khajiit that has nearly all of the blacksmithing motifs (the common ones anyways). I simply make a base piece of armor, mail it to my Imperial character, have him transform it, then mail it back. The Khajiit also sends him the latest and greatest armor sets of the day to use in the deserts of Hammerfell. I like to think it's a friendship free of alliance prejudices in which my two characters are pals that can share their blacksmithing expertise.