For what is worth FAQ supports their arguement....
From FAQ page 86
What happens to the equipment worn and carried by a
character polymorphed* into another creature capable of
wearing and carrying the same gear? What if the new
creature’s size is different?
Unless stated otherwise, all spells in the polymorph chain
function as described in the alter self spell description, which
states that if the new form is capable of wearing or holding the
item, it remains worn or held; otherwise it melds into the new
form and becomes nonfunctional. A human polymorphed into
another Medium humanoid-shaped form (such as an elf,
grimlock, or bearded devil) can wear or hold all his gear, so it
remains in place.
However, this is one of those times when size definitely
matters, since your gear doesn’t automatically change size as a
result of polymorph. Assuming the new form has appropriate
body locations—for instance, a human polymorphed into a troll
or a pixie—most of your magic items (rings, cloaks, boots, and
other items of magic clothing or jewelry) still fit just fine
regardless of your new size (see “Size and Magic Items” on
page 213 of the DMG).
Nonmagical clothing and accoutrements that don’t fit the
new size meld into the character’s body when he is
polymorphed. (The Sage recommends that DMs err on the side
of leniency when determining what the new form can or can’t
wear.)
Similarly, armor (even magic armor) doesn’t resize to fit
wearers of different sizes. The human described above loses the
benefit of his +1 full plate armor as it melds into his body,
even though the new form is capable of wearing armor.
As long as your new form can hold weapons (that is, it has
hands or other similarly dexterous extremities), you hold on to
whatever weapons you had before the change. However, since
the weapons are no longer of a size appropriate to you, you take
a penalty on attack rolls with them as described on page 113 of
the PH. A human polymorphed into a troll can still hold his
Medium weapons (although they’re now one size category too
small for optimal use and thus he’ll suffer a –2 penalty on
attack rolls). On the plus side, he can now wield that Medium
greatsword with only one hand, meaning he could pick up a
shield or a second weapon to wield simultaneously.
If your barbarian is regularly polymorphed into a troll or
stone giant, you might want to consider carrying an extra Large
weapon for use in those situations.
*The question and answer uses “polymorph” to refer
specifically to spells that rely on the polymorph or alter self
spell to adjudicate their effect (including alter self, polymorph,
polymorph any object, and shapechange), psionic powers based
on the metamorphosis power (including metamorphosis and
greater metamorphosis), and any other effect based on either of
these lists.
