I know it has been some time since a post has occurred here, but this is a pretty unique discussion and I would like to share my experience.
Having been introduced to Karatedo and Buddhism at the same time years ago, I soon quit Karatedo practice because I worried that it had negative effects and implications on my Buddhist practice. And the way I was practicing it I was correct.
Years later, I found myself having serious trouble with meditation- not just concentration problems, but physical symptoms that literally made it impossible to continue. As many tools as I tried to use from the Buddhist toolbox, I failed. My effort was tremendous, but somehow no approach was working.
Feeling quite desperate, to be honest, I wondered if Budo may be helpful. The truth was my tendency previously had been to cultivate a fearful mind with martial arts, and I saw that now- a mind directed towards ideas of opponents, attackers, and a constant need to defend myself. This kind of thinking is not the Dharma: it cultivates ego, ill will, and clinging. I honestly think that this is what tends to happen in the martial arts, and so it is an honest generalization to say they are counterproductive to Buddhist practice. But I was also aware that the true question of the path is "How am I developing my mind right now? Towards attachment, or the factors of the path?" And so I returned with a different approach. I allowed this question to guide my practice. The same mental attitudes I developed in Buddhist practice- detachment, discipline, mindfulness immersed in body and breath- would be the new grounds for my work in Karatedo. As I practiced technique or Kata, I would direct my mind to be centered in mindfulness immersed in breath, moment by moment, movement by movement. This began to work for me, and I found that the sense of peace and ease it generated within me allowed Metta, compassion for all beings, to blossom as well.
Developing the art in this way, it has become Budo, a means of developing the factors of non-clinging thought forms passed down by warriors. This is a paradox, but I am no longer concerned by that. Paradoxes are OK- I've realized I don't need to 'figure them out'- all that matters is the development of the path. All that matters is Awakening. So the salient question isn't "Are martial arts compatible with Buddhism?", it is, "If YOU are practicing a martial art, what qualities of mind are YOU developing while doing so? And do those qualities lead to Death...or to the Deathless?"
I hope that helps someone...someday