Xenosaga Episode II had the most coherent story out of the series. Keeping in consideration how Episode I ended, Episode II did gamers a favor with a development team losing important people for storyline development. It focused much more on URTV relationships and their relation in the entire UMN. II also has some of the best executed storyline scenes despite their non-relation to the overall spontaneous (and ultimately) All Knowing God, collective consciousness and phenomenon fallouts in Episode III. Episode II actually showed that the development team should have focused much more on individual character stories, which was quite entertaining, than clumsily wrap the storyline up in III with empty and underdeveloped references to Christianity, IE, the Gnosis pretty much become completely irrelevant after Episode II despite the imminence they were given in more than half of the franchise.
Not only that, but Episode II benefited from being shorter in gameplay length, with a very abusable battle system, some more U-TIC backstory for Old Miltia which properly included JIN UUUUUUUUUUUUZUKI into the storyline (ES Rueben, not AGW is fucking awesome in III), showed you the power you can abuse with MOMO which leaks over into III . . . quite frankly, Episode II was the most solid in terms of balancing categories.
I still prefer Episode III only because I preference gameplay over story. The story completely flops, Shion proves she completely mental, there are some badass scenes with KOS-MOS, chaos really becomes unnecessary and his given prominence in the last few scenes is baffling. The mech battles are the best mech battles, from the boring and completely rape-able mechs of Xenogears, to the power rangers inclusion in Episode I, to the ambivalence in Episode II, to supreme awesome motherfucking mech battles in Episode III. That, and they have better aesthetic guidance - II was full of a fairly drab palette.