This is a very well crafted edit. Like Mojo said, this goes far beyond your standard "cut things you dont like" and "insert deleted scenes" fan-edit. Not that there's anything wrogn with those, but I find these more ambitious projects much more interesting.
My opinion of The Matrix is a lot like yours; loved the first one, the sequels were big dissapointments. I hadn't seen the offical movies in a long time, so there's a lot of stuff I'm sure I just forgot about, but I do have some questions that popped up during my viewing:
-What was the significance of Neo dreaming of Trinity's death? Twice? Since those events no longer occur, what do they mean? And what about at the end with the Architect? You edited out some of the more obvious dialogue referring specifically to the events of Reloaded ("she is going to die and there is nothing you can do about it"), but still I didn't understand where you were going with leaving so much of that in for Neo's and the Architect's conversation.
-In this edit Smith is still part of the system. Is this because his purpose is to purge "the anomaly" from the system to reboot the program? That's what I took from it; if not I'm not sure where exactly you were going with his character.
-I think I have the Neo's real world powers and the new ending figured out. EVERYTHING we see is a simulation, the "real world" is indeed a Matrix outside the Matrix. The illusion of freedom is just another form of control by the machines. That's why Neo has powers in the "real world" and that's why when the system reboots, everyone is back to where they were at the beginning of the series, even though they might have been unplugged or even "dead." Do I have it right, or is it just "up for interpretation"?
As for the final line, it worked enough for me. Without it all we see is a scene from the first film. "Sorry kid" makes seeing it again just different enough for it to be an appropriate ending.
I think the "perfect" edit of the sequels lies somewhere in between your edit and Doctor M's Hacked edits. I might try to do one myself one day, but I really don't care about the Matrix a s much as you guys do so maybe not.
Looking forward to the DVD!