Hard Plastic

If the hair dryer isn't working, you could try boiling water. Give it a dunk in that for a while, then try to stretch it out, with your fingers (take care not to burn yourself in the process) as much as you can, and then dunk it in ice cold water to "fix" the new shape. Again, if the plastic is really hard, you might not be able to get it to budge at all, or it might just break under the stress.

Dremeling out some plastic, as you've suggested, might work too, provided the armor is thick enough and the size difference between the two figures isn't too great.

Oh yeah, I just remembered some comments I read some time ago from a guy who was trying to get some removable plastic clothing to fit on a female sculpture (one of those kits you have to build yourself). What he did was put the clothes on her anyway, as best as he could, then he tied some rope/twine around them, binding them very tightly to the body, and then threw the whole shebang into a boiling pot of water. That did the trick, but, in that case, the clothes were actually sculpted to fit the character and had just warped in the packaging, they weren't from another figure. Anyway, it's an idea.

It is going to be repainted anyways so that shouldn't really be a problem. I usually use a hair dryer to heat things up, but I don't think that will get it hot enough. What method would you suggest?
I'm making a Bardock custom out of the Jakks Pacific Ultimate Goku and Vegeta. Vegeta's armor pops off into two pieces and is meant to be removable. I need it to fit on Goku but it is a little too small. Goku's waist is too big.
I also thought about dremmeling out the inside of the armor.

If it's not too thick you might be able to reshape it a little bit by heating it up, but, more than likely, you'll just get ugly white stress marks, or breakage, instead.