From wikipedia:
In recent years, the Xenosaga project has seen the removal and resignation of staff who were contributors to the game Xenogears and/or the first episode of Xenosaga. As of Episode II, scenario writer Soraya Saga was removed from the Xenosaga team. According to a column by Saga, the original draft of Episode II was drastically altered. (However, most if not all of the plot details removed from Episode II, as originally described in Soraya's FAQ, have been included in Episode III.) This information was removed from Saga's website. While Saga is not working on the series anymore, Tetsuya Takahashi continues to be involved as a scenario planner. The music composer, Yasunori Mitsuda, has also left the Xenosaga series as of Episode II. After these events, Episode III was declared to be the last primary Xenosaga episode.
Tetsuya Takahashi, Kunihiko Tanaka (character designer), and Yasunori Mitsuda have been contributors to the series since its origins. While Tanaka re-illustrated the characters for Episode II, he has since distanced himself from the project as well.
Sure's an epic story when you can just remove parts of it and then add it back in a later episode.
The whole Xenosaga story is nothing more than Emperor's New Cloth. It's a story about nothing in particular that makes people think they're intellectuals by interpreting what it isn't there. It's the video game version of an English class where you analyze something that isn't there because clearly every writer had these all encompassing, with symbolism, wordplay, and allusions that span every word of the text.
Jin Uzuki was supposed to be in the first game. That was scrapped. The series was supposed to span 6 titles, but had no problem trimming it down to 3 when the series flopped. If you actually believe the whole thing was supposed to be good and make sense at any point in time then it must follow that having large parts of the story ripped out and then reinserted later on must screw it up. It probably never made much sense to begin with which is why it can be drastically altered in the first place.
Even the original Xenogears wasn't really that great so far as story goes. It had a decent story whose enjoyment relies on knowing the way too many behind the scenes stuff that you can never possibly have known via playing the game (aka Perfect Works). Kelvena has her eyes closed all the time because bad things is supposed to happen when she opens them (she has the highest Ether rating out of Elements or something like that). That's why the Perfect Works claim but in reality she's just a fan service character who the artist thought would look cool with her eyes closed all the times, as there's absolutely nothing in the game that suggests she has any relevance beyond being one of the 4 Elements.
Megaman, when you look at the behind the scenes stuff, has some seriously cool stuff going on. The fact that behind the scenes, Dr. Light made the Sigma Virus does not change the fact that in the game itself, Sigma Virus is an absolutely trivial 'make Reploids go bad' device. Xenosaga, as a game, doesn't make sense, which is why it relies heavily on the encyclopedia thing. The encyclopedia is not a supplement or augmentation to the game's story. It IS the story. There are things you simply cannot know without reading it because it is never presented in the game. It might be the case that a game is too limiting as a medium to express whatever ideas they have had, and if so in this case they should have written a Xenosaga the book. But you can't just show a medicore, borderlining on nonsensical story and say please read section Z of the encyclopedia to see why it's supposed to make sense! The game has to stand on its own, and it does not.