As far as the ending goes, there was no great way to resolve it without an extra hour of denouement, but we'll see how the fourth movie handles it (my hopes aren't great, honestly). It resolved on a positive enough note and the video games do take it further. I haven't played them, so I can't say how well they did that.
Gato said pretty much everything I was going to say (we have talked about the Matrix together for at least like 30 hours or so lol). But to give more detail: The very first Matrix was basically a paradise, and was rejected by humans as they knew it was too good to be true (Smith says this in the first film, and it's reiterated by the Architect in the second). They eventually settled on a version of the Matrix that was basically like real life, not too good, not too bad. And 99% of people accepted this. 1% didn't accept it, but this was only on an unconscious level. This manifested itself in kind of rebellious subcultures, like Neo not fitting in at work, people deciding to stay at home and be hackers instead of going out and socializing, etc. They knew something was wrong with society but didn't know exactly what. They were searching for the Matrix without really knowing what they were looking for.
In order to deal with this, "The One" would lead humans out of the Matrix and into Zion for several years. This is another level of control, but it's not directly the Matrix. The humans think they're rebelling, but it's only because the machines let them do so. Once the population reaches a certain size, they are destroyed and the next The One rebuilds the city. This again is stated in the first film (Morpheus' speech about The One showing up at the beginning of the Matrix and freeing the first people, and that he would then be reincarnated). That stuff is all true, but everyone thought that The One was the first, when there have really been 6 so far.
So in short words, Zion is "controlled" by the machines but not directly in the way the Matrix is. The whole point is the illusion of control (there's a great conversation between Neo and one of the councilmen in the 2nd film about it). The humans have to believe that they're free.
As far as the "the real world is a second Matrix" I don't buy that theory at all, not only because it's not really supported by anything in the story (no matter what MatPat says) but because the idea of freedom still being an illusion in a less physically literal sense to me is far more interesting.
For the record, I agree with all of this: my issue isn’t the logical framework that conceptualizes the story of the matrix, rather the dialogue and fake-philosophy it tries to spin in your face which makes the message of the movie convoluted and reliant on wiki articles to explicate, which is: existential choice is hard and creating meaning is nearly impossible, but we can’t give up.
Agent Smith eventually starts to make no sense. The matrix devolves into too many players playing a convoluted game. The first matrix is genius. The rest are head-scratching.
I'm not sure what you feel makes no sense about Smith (you didn't really say), but personally think Smith is an extremely compelling villain who sees himself as inextricably linked to Neo and therefore finds his purpose in assimilating him. As for the sequels, in retrospect I don't see the first film even working at all (far too many loose ends like past matrices, Smith's motivation, what the oracle is, etc.) without the context the sequels provide.
I used to think the philosophy was just empty words (And I know you were a philosophy major so perhaps you had a more personal idea of how these ideas should have played out, which led to your disappointment). But when I became more open-minded about it, I realized most of it made sense, even if it was delivered in a clunky way (especially the third). I can definitely agree with them being maybe too complicated, and that could be a downside. But when understood, it makes sense to me. I would be happy to discuss that further though.
To your point though, I did watch an interesting video essay
here that basically made the argument that the Matrix sequels were too confusing for kids at the time, but also didn't work for adults at the time. And therefore, the only audience that would appreciate them was...people who saw them as kids, once they finally grew up to be adults. I fit that category so I'm inclined to agree.
