Material:
Using my previously stated idea of a personal self-replicating environment, I would say that materials used by such tiny individual units would have to at least somewhat be based upon existing biological cellular structures. The personal environment would itself be the material, at least to casual human observation. With the goals of temperature control and oxygen production being primary, already a variety of compositional materials would be needed. The personal environment would act as a skin for user, so it would need to, at a minimum, be able to complete those functions. As such, a material for resisting impact would be needed on the outside both to protect the user and the functional material itself. The impact-resistant material would need to be able to contort to every human movement so as to impede the user as little as possible. In addition, it would need to be synthesized from readily available substance in everyday life, be they from the outer environment or, more likely, from the user's body. The material would also need to be repairable and almost necessarily recyclable so that personal environment could maintain it in working condition.
Further functions need be done with the same material. A second layer for the purpose of thermal control could be used. This layer need not take the impacts of the outer, so the material would not need to be as resilient or easy to repair. The material would, however, need to maintain the flexibility to conform to human movement. Functionally, it would need to be an incredibly effective insulator. Since layer thickness would be minimized to increase user comfort, the insulating ability would need to be particularly effective at low densities.
Artificial skin has been under development in the medical field since the first bandage. A few modern examples can be found here:
While current efforts focus on mimicking natural skin and helping the body restore the actual epidermis, the goals of my material are to surpass and replace human skin in functionality.
Ethics:
I see nothing wrong from working with living material. I've always had a personal problem in that I tend to be very moralistic, but I can never logically justify why I should be so. Thus, talking about ethics has always been difficult for me. I know that there exists no absolute right in the universe, but I can't help but try to adhere to one. There is almost no limit to the actions of others when dealing with life I can accept, be it genetic engineering of a glowing rabbit or putting a kitten in a microwave, but I would not personally do much of it. As to these specific examples, I don't have any problem with them whatsoever and I would even be interested in joiing some of the projects. "Playing God" is an archaic fear that the human race should eradicate.