DrunkenMage
Intoxicated Arch-Mage
I'm pretty sure that it was more than just dangerous prisoners that they were thinking of and who are those most notorious criminals that she was speaking about? The Forsworn? Yeah they're criminals for fighting to regain back their region that the Empire had stolen from them by hiring Ulfric and his Talos worshiping men to take it back. The reach was quite peaceful under Forsworn control for 2 years up until the Empire forced their influences.
Except prisoners is all that is mentioned. So it's all we got.
Yet the Empire would rather stick to their steel made armor rather than to take an advantage of the Stalhrim material that can betterment of their overall armory and weapons.
Look at the weight and the ratings of both. It's safe to say that they do not know a whole lot about this material.
Mass production. Steel is far more common and easily shaped. The Empire has been known in the past to use ebony and even Daedric weapons and armor.
Why isn't the Empire desperate enough to betterment their weapons and armor? Arrogance do not win wars. Do they really have confidence over their steel made armor that they think they can use to win the second round of this great war? If I was the Emperor I would be doing exactly what the Thalmor are doing and try to discover new materials to use for my armies because I owe it to them, since they're willing to risk their lives to keep me on the throne.
They are mass producing weapons and armor, even in Skyrim. They're also buying weapons from Black Marsh.
Because you need things in bulk, and there is no point in kidnapping one smith, to make your weapons and armor. There is desperate and then there's Thalmor desperate.
Empire is smarter to use steel, it's far more common and is easier to work with as a material. Are you going to equip your soldiers with what is readily available or waste resources trying to get other things, that may or may not work out.