While Nibelung's answer has its heart in the right place, and is correct in its explanation of 4e's design ethos, it's missing a key element:
In 4th Edition, rules do what they say they do, and ONLY what they say they do.
This rule says that the attack targets a creature of your choice adjacent to you, but it fails to specify "even if the new target would normally be outside the range of that attack." -- so it does not do that.
The general rule in play here is "the creature making an attack selects the target of that attack," and that is being overridden by a more specific rule that fails to account for the situation outlined in your question.
It's ultimately up to the DM to determine exactly how to adjudicate resolving this, but here's a few possible interpretations:
- The Skald Armor power should not be used in a situation where there are no other valid targets for you to select from, because you would be the only valid choice, so the attack would still target you.
- The Skald Armor power cannot be used in a situation where there are no other valid targets for you to select from. This is essentially a common-sense houserule based on #1, effectively modifying the trigger line -- but this requires a bit of metagaming in terms of knowing or discussing the triggering monster's reach.
- The Skald Armor power can be used in a situation in which there are no other valid targets for you to select from, in which case it results in an automatic miss. This, too, would be a houserule based on the silliness of #1.
- The Skald Armor power can be used to extend the reach of an enemy's attacks to include any target adjacent to you. This may or may not have been the actual rule's intent (discussing intent is almost always subjective and pointless), but is a perfectly acceptable houserule, again considering how silly #1 would be.
Interpretation #1 is the literal reading of the rules text, but, as is implicit in Nibelung's answer as well, is silly enough that either you (or your DM) should consider adopting further clarifying houserules, or discourage use of this item in that situation.
For what it's worth, this is one of my favorite items, and I almost always use it to target the triggering enemy ("Stop hitting yourself!"), though that doesn't work if they're making a reach attack and I'm not adjacent.