Let's get the easy part out of the way first. Yes, "Iron Man 2" is not as good as "Iron Man." No, it's not as bad as "Spider-man 3." The movie's passable, but passable isn't really what you want from a superhero film.
First, there was plenty that worked – everything involving the characters of Tony Stark (Robert Downey Jr), his personal assistant Pepper Potts (Gwyneth Paltrow), his best friend Cpl. James "Rhodey" Rhodes (Don Cheadle, replacing Terrance Howard), and the great badass Nick Fury (Samuel L. Jackson), was excellent. The good guys got plenty of development, lots of good scenes, and made it through the film unsullied but not unchanged either. I really enjoyed Pepper and Rhodey being forced to assume new roles in order to deal with Tony's new wave of self-destructiveness. We could have had a perfectly good movie with just the three of them. Nick Fury's role was a bit of a deus ex machina for my taste, but I like Samuel L. Jackson's performance so much, I don't mind.
As for Tony Stark, the major antagonizing force in the film isn't any of the obvious villains – it's Tony Stark. The arc reactor that replaced his heart and saved his life is also slowly poisoning him. The pressure of dealing with his failing health plus the sudden fame of being Iron Man bring on the stress, resulting in a lot of foolhardy decision-making as Tony tries to sort out his legacy. He appoints Pepper CEO if his company, which ends up distancing and alienating her, thumbs his nose at the government despite Rhodey's attempts to play mediator, and does a very bad job of controlling his worst impulses in the face of mortality. I think director Jon Favreau bungled a few things – we never really get to the core of Tony Stark's fears, and a relationship that proves very important to the plot is barely established before it sudden becomes vital – but for the most part that side of the story works.
Now the real misstep of the film is the villains, namely Ivan Vanko and Justin Hammer, played by Mickey Rourke and Sam Rockwell respectively. (Though she never lacks presence, Scarlett Johansson's Black Widow turned out to be a fairly minor character.) I liked Vanko, a brilliant Russian scientist and convict who holds a massive grudge against Tony Stark, and is established early on to be a potentially major threat. The problem is that all of this menace pretty much disappears once he teams up with the film's other villain, Justin Hammer, a second-rate weapons manufacturer who wants to be Tony Stark, but lacks the scientific brilliance to compete. Now I've liked Sam Rockwell in previous roles, particularly his wonderful turn in "Moon" last summer, but Hammer is a weaselly weakling who borders on comedic, and a little of him goes a long way. So it's utterly painful to get scene after scene of Hammer plotting and skulking, setting up a climax that is ultimately very hollow.
Because the major antagonist in "Iron Man 2" is Tony, everyone else is treated as a distraction. Hammer never rises to the level of real villainy, and Vanko's vengeance becomes strangely de-personalized. In the second half of the movie, neither of them share major scenes with Tony Stark or Iron Man that actually advance their characters. Compare this to the wonderful betrayal in the original "Iron Man" where Obadiah Stane ripped Tony's arc reactor out of his chest, leaving him to die. Now that made things personal. In the sequel, Vanko and Hammer get a scene apiece with Tony early on, but neither of them get under his skin in the same way. We're left with big, climactic fight scenes that feel perfunctory and there's a serious lack of resolution for the survivors.
In the end what the movie was missing was a lot of fine-tuning. Though the effects were immaculately constructed and you could tell that everyone involved was giving it their best, the production felt very rushed. There were rumors of reshoots and tonal changes being hammered out before the film's release, and at least one major scene that was featured in most of the advertisements didn't make it into the final cut – Pepper and Tony's banter before Tony's entrance at the Expo. The script did a lot of things right, but if Jon Favreau and the rest could have pushed "Iron Man 2" back another year and taken the time to tackle those story problems, it would have made a world of difference. It's frustrating because you have the pieces of a very good film here, but so much is half-formed and incomplete.
Warnings for a minor spoiler ahead – skip ahead to the next paragraph if you want to avoid it. One little detail that struck me immediately, was the modified version of the arc reactor that appears late in the film, shaped like a triangle. The Iron Man suit then also changes to incorporate a triangular light in the center of the torso instead of the original circular one. It was an awful design decision, because though the change did distinguish the new suit, it also undercut the iconic look of the character. A triangle is a hard-angled, unwieldy shape reminiscent of older technology, whereas the circle is more organic, visually appealing, and evokes the streamlined look of modern products. If they had to update the arc reactor, there are so many other things they could have done, like adding a concentric circle or a starburst pattern to enhance the original design. The triangle just looks hasty and not well thought out.
And finally, as I feared, too much time was spent setting up the "Avengers" movie. We had the after-credits cameo, the evasive talk from Nick Fury, and a lot of shameless references. It's amazing how much of the goodwill from "Iron Man" is being used to set up this project – I really hope it's worth the effort, and I hope it's finished before we get around to "Iron Man 3." If I have to watch Tony Stark's "Demon in a Bottle" descent into alcoholism intercut with Nick Fury attempting to get him to go out and recruit Captain America, I'm calling shenanigans, Sam Jackson or no.