what you have done is stunning, you have laid out a very cogent guide through this trilogy that has become so interesting to so many of us. the wachowski's seemed to have said a few times that they did not want to spoon feed any answers, figuring points out on my own is fun, but i never would have guessed at what clearly seems to be a dead-on analysis of the whole underlying construct ( who would note that the Oracle didn't have the cookies ready for Neo?) i'm sure you're right about Smith being destroyed by Neo inserting his "Code", but i think it was unfortunate that they had a cut to the Architect/Mainframe/interface right at the moment he begins to degrade, it gives the impression the machines "used" Neo. May i ask, what state do you believe Neo to be in... does he now have a residual machine consciousness, is he medically "alive" in the human world?, and what would you guess of the Oracle's and Sati's speculation that he will be seen again in a time of need? that he is living free in an as yet unknown reality (unknown to either machines or humans, perhaps Hawaii?)
i half expected him to actually be a present day patient in a "Locked-in" state, (these may be caused by a variety of medical conditions, most commonly brain tumor, certain post-stroke scenarios, etc) wherein the patient is awake, but has no avenue for communication with the outside world at all (not even eyelid blinking, sphinctre contraction, puffing, eye movements, etc.) some new work with brain/eeg interfacing can yield a reproducible "yes/no" eeg signal that can be used to spell words, etc. i half-imagined Thomas Andersen to be such a patient, and that his machine interfaces were the beginnings of escape, but that he had survived by constructing his elaborate fantasy world of the Matrix, that he could hear or sense trinity or morpheus in his hospital or rehab center,... anyway, thank you, thank you, thank you, a wonderful, wonderful job of thinking and writing... i can't wait to see the movie again, if we can just find a baby-sitter
I would contend that Neo is still alive, a bit overwhelmed – as I think we can all understand, given that he’s had his eyes fried, his mate impaled, and his brain partially overwritten – but there are two things that lead me to believe that he is both alive in the physical and mental sense of the term.
The first clue it seems to me is that after Smith is eradicated and Neo’s prostrate body is being moved to the transport we are given a glimpse of that same view from the machines-eye view (all the golden light and all) and it is Neo himself who is blindingly bright, so bright that he outshines an entire city of machine consciousness all around him. From this I deduce two things: a) that Neo is still alive, since his body is capable of producing such a powerful “machine-readable consciousness” signature, and b) his consciousness has been altered somewhat (making it read up like the machine consciousnesses), but certainly not eradicated -- since it is glowing so brightly. I’d venture further to say that his altered consciousness is glowing so brightly – brighter than any machine -- precisely because, although altered, he is still fundamentally and unalterably human at the core.
The second clue to Neo’s continued existence is the fact that the W bros tacked on an ending to clear up a few Qs for the audience, in which the Oracle says to Sati basically that yes, we’ll see Neo again, he’s not dead. I expect that Neo to be both medically alive and yet to exhibit a form of consciousness that, while still human, is more attuned to the machines than before, and remember, before he could start to feel them.
As for the rest of the human members of the Matrix, you can be sure that they are alive and well, if also a bit dazed like Neo. After all, the Matrix is still generating juice, isn’t it? I wouldn’t be surprised if they all wake up in their beds thinking they had a funky dream, like Neo in the first film.
The whole question of Neo’s third “death” (remember he’s already died at the end of the first and as the Oracle said, should have died at the end of the second rather than appearing at Mobil station) in three movies also raises an interesting topic that I’d like to address briefly and to which you allude: the question of how and why Neo is needed to eliminate Smith. I’ve read some things that claim that Neo was merely a means for the Source to plug into Smith and eliminate him. These explanations typically rely upon that same sequence you identified when Neo is shown bursting with light (like the Smiths). This has been interpreted as some kind of electrical pulse or surge supposedly emanating from the Source. This explanation reminds me of the old (and now debunked) matrix-in-a-matrix theory: both initially appear to be the “only” interpretation of the action on the screen, but in fact fail to take into account for everything that we have already learned.
So, for example, why would the Source need Neo as a glorified cable to plug into the Matrix? We already know that the Matrix is connected to the Source: the Source is where Matrix programs go when they are obsolete, the Source is also the source of the new upgrades, and some programs have even hacked the firewall (the Merovingian and Trainman) to facilitate getting between the Source and the Matrix unobserved. So a link does exist, and Neo is not needed to create one. Secondly, Neo is not needed to insert a machine code – that could just as easily be done by creating a program, inserting the code into the program, and then sending that program to the Matrix to be assimilated by Smith, insuring the uptake of the program. So what does Neo provide that the machines need to destroy Smith? Not as a link, not as a Trojan horse, but rather because Neo has something that the machines cannot reproduce. My reading is that something is the same something that was needed to reload the Matrix at the end of the second flick – the power of choice, of free will and a decision freely chosen, not mandated by an algorithm, as would be the case in any machine entity. So it was truly Neo that destroyed Smith, the very essence of Neo, not the Source or any type of electrical surge.
After all, ask yourself, if you are a movie director who do you represent visually the power of one world view destroying another? You’d depict it as an exorcism, but what does that look like… particularly if the evil spirit is actually a computer program? Well, maybe you’d try and depict a surge of light… and furthermore, in a trilogy of movies that went far out of its way to highlight issues of choice, determinism, free will, destiny and alternate forms of consciousness, does it seem right that in the ultimate confrontation the only role for human beings is that of a glorified modem? No, it certainly doesn’t, so I think I can say with some certainty that such an ending is not what the Wachowski bros intended anyone to accept.
6:51:45 PM 
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