In my opinion, martial arts (under a respectful master) are not in conflict with lay Buddhist practice. Lets face it, peaceful words and avoidance don't work all the time and sometimes it comes to a physical altercation, some people are just out for blood and to cause problems no matter what the other person says or does. I know from my years in Tae Kwon Do, we are always taught never to fight, but to defend when all else fails. Our skills were taught and practiced in the spirit of defense of ourselves and others who are defenseless. If it comes to physical altercations, the goal is to defend and disarm your attacker, and never to maim or permanently injure. Though it takes practice, we learn to cause the least amount of harm as possible, but it is sometimes necessary to harm in order to defend. I say that is the khamma of the aggressor if he/she gets hurt. If your intent is to defend it is not unskillful practice, if the intent is to harm it is unskillful and should be abandoned. Just think, how much compassion is needed to put yourself in harms way to defend the defenseless?
Not to mention the myriad health benefits that come from practicing martial arts. Ask any good teacher and they will tell you that although physical in part, it takes mental clarity and insight to perfect and master the movements. I would say it definitely counts as a form of meditation.