Personally, I don't know. I'm thinking about starting characters a lot and I've got a game about to start. What's keeping all of my players from dropping relatively low amount of cash on padded armor? It's pretty much the best starting armor. It's cheap, light, and provides a higher soak bonus. Is there a downside I'm missing or is padded armor just a little too good for a newbie character?

It's not upgradeable (without the Tinkerer talent), so that's the reason it's so cheap.

Plus the fluff indicates that it is not something a character would want to wear on a Core world. It's kinda mercenary-looking.

It's 500 credits. For a starting character, taking it almost assures that Obligation is going up. Buying a few suits later in the game (though still fairly soon into play) is reasonable, bit only for when you want to look obvious that you're looking for action.

Yes, it is quite good for not improving soak a little (my Wookiee bought it, not that he needed it much). But consider the narrative problems with going around in armor all the time. We're on a frontier smuggler world and the GM basically said "if you're NOT packing weapons people are going to look at you weird." This wouldn't be the same on a more civilized world, or even other smuggler-oriented places with a larger Imperial presence. Wearing armor could be a reason for a stop-and-frisk, request to see a bounty hunting license, etc. It's the equivalent of a person going grocery-shopping wearing a bullet-proof vest. Legal, but certain to arouse suspicion and, in some cases, cause concerned citizens to call law enforcement just in case.

It's not good for the cases you need to go incognito - in that case I'd expect characters to have a set of heavy clothes or save and splurge on hidden armor. Nor is it really that great in the long run. Combat-focused characters are going to want laminate and heavy body armor sooner or later. It's decent for chargen, but I wouldn't worry too much. Padded armor alone isn't going to stop you from getting hurt - players need to be smart, use cover and tactics, etc.

Personally, I don't know. I'm thinking about starting characters a lot and I've got a game about to start. What's keeping all of my players from dropping relatively low amount of cash on padded armor? It's pretty much the best starting armor. It's cheap, light, and provides a higher soak bonus. Is there a downside I'm missing or is padded armor just a little too good for a newbie character?

As HappyDaze mentioned, a PC wanting Padded Armor is pretty much going to be taking at least a +5 bump to their Obligation to get the extra credits needed for both the armor and any other gear they might want, so there's a notable downside right there, particularly if you're in a smaller group with a high base Obligation anyway.

Also, it's combat armor. It'd be like strutting around the downtown region of a major city in riot gear. You're going to draw attention, and not of the good kind, especially if you've got high-powered weapons such as a blaster carbine or vibro-ax slung across your back/over the shoulder. Heavy clothing (or equivalents) doesn't protect as well, but it doesn't draw anywhere near the same amount of attention.

Plus, there's the fact that it's not upgradeable under most circumstances as Away made note of. It gets you +2 Soak Value... and that's it. Laminate Armor can be upgraded quite a bit, and heavy battle armor provides a free setback die to enemy attacks, making you less reliant on cover than your allies.

The reason its so cheap is to help keep the characters alive. Combat in this game is nothing like a lot of games. It can be extremely brutal and fast, because even hits can be include something bad happening to the party.

My first combat in this game was against 3 trooper minions (1 group of 3) and a Sergeant against 3 PCs it ended in a party wipe and waking up in prison.

The reason its so cheap is to help keep the characters alive. Combat in this game is nothing like a lot of games. It can be extremely brutal and fast, because even hits can be include something bad happening to the party.

My first combat in this game was against 3 trooper minions (1 group of 3) and a Sergeant against 3 PCs it ended in a party wipe and waking up in prison.

Other than the D20 rule system, every system I have played in has been deadly when it comes to combat (Savage Worlds, Shadowrun, D6 (Star Wars and otherwise), GURPS, HERO System, Legend of the Five Rings, World of Darkness, etc...).