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Ok here is the scenario:
Arch Lector on War Altar (a chariot). I issue a challenge to a Lizard champion within a unit. I do some damage he does none, we are still both standing.
I then start to role my horses and he says horses don't count in a challenge.
He then says that he can attack my war altar with the rest of his unit because of the chariots rule on pg64 that says "in close combat, enemies can choose whether to attack either the chariot or the character riding it, in the same manner as combat against characters riding monsters.

I am still new to the game so tell me how you would rule on these two questions and if possible where in the rules I can find the info. I looked at the chariot rules and it says the chariot is one unit, but he tried to argue that when fighting in a challenge, my arch lector would have to step off the chariot to fight his guy.

Thanks ahead of time.

The chariots steeds can attack in the challenge, and you cannot attack either the character or his mount/chariot unless you are the challenging/challenged model.

See the rules on challenges in the BRB, it is explained perfectly clearly there

Edit: hes probably thinking of 6th - characters no longer step down from chariots. If in doubt ask the person to show you the rules!

That's right. The Lector and War Altar are considered a single model and thus when in a challenge they can fight against the oppposing challenged model. The only thing the opposing unit does is contribute things like rank bonus, banner benefits and outnumber bonusses, these still count towards combat result as well.