I watched The Matrix again tonight, partly because my TiVo is sick and partly to erase memory of the horrible sequels out of my mind. Now I understand what made the first film so magic: the interplay between real and simulation. The film toys with us, showing us little glimpses of the synthetic. Deja vu, the reality of bullets, the ability to do kung fu. And the lovely Cronenbergesque bits, the baby with the hoses, the bug, the sockets in flesh. The whole film is a discovery of unreality.
The next two films strand us, in the words of the script (and Baudrillard), in the desert of the real. Ugly boring world with stupid Zion hippies. And Neo is already brilliant and all powerful, so there's no discovery. No pleasure.
This is reflected in the special effects technology. The first Matrix film is beautiful because it is, ultimately, a film. The FX are mostly film tricks (slowing, rotating) and the stunts are mostly human stunts, people on wires. The reality-based effects work highlights the gap between the Real World and The Matrix. By contrast the digital effects work of the second two films is just unreal. And boring.
There was no way to make a good sequel.