Here's my take on what the story of Infamous 3 might be. I think both endings of Infamous 2 are canon. They take place in parallel universes, and both are very important to the story of Infamous 3. Here's an option that I just thought of.
Infamous 3 takes place in the universe where Cole has become the Beast (Evil Ending). The lightning bolt at the end of the Good Ending represents Good Cole being transferred into the Evil Universe, into the body of Kessler.
The relationship between Cole and Kessler was never fully explained, except that Kessler is Cole from the future. But why are their names different? It could be because Kessler and Cole are unique types of conduits, and the blast from the RFI sent Cole's mind into the body of another compatible conduit in another universe.
It's important to remember that the Kessler in this timeline is not the same Kessler that went back in time in Infamous 1. So people that have been saying that a story focused on Kessler would be boring because we already know what happens, are completely wrong. We know what happens to Kessler in one timeline.
But this is a completely different timeline. Good Cole (inside Kessler) is already armed with knowledge from his past, as well as the knowledge from Original Kessler's past. There's no need for him to go back in time again. All he has to do is fight the Beast.
Anyway, there are so many unique timelines and universes in this story, that it can boggle the mind. You could realistically assume that during the events of Infamous 1 and 2, there was some guy named Kessler living somewhere with his family, completely unaware of the Beast or his potential powers. That is, until Good Cole enters his mind and activates him.
So I think Infamous 3 will involve Good Cole as Kessler fighting Evil Cole as the Beast, all within the Evil Universe. I think the concepts of time travel and parallel universes will be a major theme.
It would also mean that choosing to be "good" or "evil" would be really complicated, and not really an option, since you're essentially playing as Good Cole. Unless they allow you to choose Kessler or the Beast from the start. But that would involve creating basically two different games, which I don't think is an option.
Either way, I don't think you will be given the option to choose "blue" or "red". I think the story will be far more complicated than that, and instead of choosing "obviously good" or "obviously evil", you'll have several non-color-coded choices presented to you, because that's how most choices are in real life; no clear answer.
I think the series will end several different ways, instead of just two. One obviously will be Kessler destroying the Beast in an awesome boss fight. But I think there's a much more interesting option. One of the choices in the game could be to go back in time again, and destroy the First Sons (and maybe even bike messenger Cole) before the Ray Sphere can be developed. Everyone is saved before they even knew they were in danger...sounds like an interesting way to end the series. Very "Donnie Darko".
After Infamous 1, I figured the Beast was evil Cole, and the series would end with Cole having to fight himself from two different universes. It's really the inevitable showdown that has been set up from the start. I really hope they go with something like this. I can't wait to play this game.
The Beast from inFamous 1 was not evil Cole. Cole may take on the Beast's powers at the end of inFamous 2, but the Beast from inFamous 1 and the Beast that Kessler traveled back in time to warn himself is not evil Cole. And alternate timelines colliding would be a cheap cop out for inFamous 3.
Damn, sorry to hear about the recent death of your PS3...that really sucks! My 60GB from 4 years ago is still going strong, even after two hard drive upgrades. I hope it never bricks on me, because I'd lose my backwards compatibility.
Anyway, you're definitely entitled to your opinion, but I think that an alternate universe is the only way to continue the series with a living Cole. Others have suggested that Infamous 3 could involve a different conduit, or a "create-a-conduit" feature. In my opinion, continuing the Infamous storyline without Cole in some form as the playable character would be a huge mistake, and they'd be better off not continuing the series at all. I haven't read a single plausible proposal involving a new conduit.
I'm sure with Sony's recent acquisition of Sucker Punch, another sequel is now more or less guaranteed, whether Sucker Punch intended to or not. It's becoming too big of a franchise for Sony to be okay with ending it. I'm sure they'll figure out a way to bring Cole back into the third game; they're a quality dev and I have faith that they'll continue to do well.
But like I said, the only way I can see this happening is by taking advantage of alternate universes and different timelines. It's not a cop-out because it was already established in the first game that those are accepted institutions in the game world.
Hmmm.. I don't think the first game used alternate timelines coming together, though. You still seem to be assuming that Kessler was good Cole and the Beast was evil Cole in the first game. This isn't the case. Kessler is just Cole. In Kessler's original timeline, there were no moral choices to be made like in the first game. The Beast came from nowhere and Cole traveled back in time to warn himself. If the Beast were evil Cole in the first game then he must have been evil Cole in Kessler's timeline which doesn't make sense. The timeline of the first game only happens because Kessler came back in time. There was no evil Cole in Kessler's original timeline. All I'm saying is it's either a good Cole universe or an evil Cole universe. I don't think they should ever combine the two because it would be a lousy story in my opinion.
I'm not saying that Kessler was good Cole in the original timeline, because I think that violate's the game's time travel and universe structure. I agree that he's just Cole, but as I said, a game involving him as the playable character could still have moral choices. They just wouldn't present themselves as two distinct Blue/Red choices.
Still, there's a number of time paradoxes that need to be solved before they wrap up the series. In Kessler's timeline, the First Sons (not led by Kessler) presumably created the Ray Sphere and detonated it, giving Kessler his powers, and turning an unknown conduit into the Beast. It definitely makes sense, and it wraps everything up nicely.
However, it seems really stupid of Kessler (who must know that the Ray Sphere is what gave him his powers AND created the Beast) to go back in time and create the Ray Sphere himself, and give powers to Cole (AND the Beast), as opposed to just stopping the whole thing. Wouldn't it make more sense for him to go back in time and fight the First Sons and prevent the creation of the Ray Sphere? That way no innocents have to die.
It seems like there must be something more there, because if not, then what we have here is a really fun game based on an idiotic premise. Somehow, the Beast has to be created regardless of if the Ray Sphere was created or not. Or, Kessler really has to have no clue that the Ray Sphere also created the Beast. Then you could have a sequel in which Kessler travels back in time to prevent the Ray Sphere creation as opposed to speeding it up.
That's another thing, at what point does Cole/Kessler get time travel powers? Kessler had a lot of powers that Cole didn't, and Kessler had none of Cole's powers. I think the sequel could explore all of these unexplained plot points.
In Kessler's original timeline, he is uncertain of who or what the Beast is. He still has powers, but they develop naturally and slowly over his life. He travels back in time to set of the ray sphere earlier in his life so that he'll be ready when the Beast comes. That's why he doesn't just go back and destroy it.
I think inFamous 3 will maybe have a new villian, or it could just be about Kessler's original timeline and his quest to travel back in time. It still just wouldn't make sense for Evil Cole and Good Cole to be fighting each other.