You're right Ouch! in that Xenogears was not Episode V for the Saga series though many people thought it might be since Saga begins at the starting time presented in the Perfect Works timeline for Gears. Gears was part five of whatever story was conceived at that time and what little we know of the other five parts was only mentioned in Perfect Works.

Here's the pages from Perfect Works
PW002.jpg PW003.jpg

Saga was suppose to have similar set up according to interviews with the Xeno Creator (by that, I mean each Episode was separated by thousands of years featuring a mostly new cast. Only KOS-MOS and chaos were apparently going to appear in all episodes). But due to some internal strife, we got the present version.

Also, to clarify what Ouch! was mentioning about the series being split storywise. The original trailer for Episode 1 featured scenes from Episode 2 in it. Mostly the talk Jin and chaos have at the Uzuki estate, Jin's battle with Margulis at Old Milita (the second one, not the flashback to the Miltian Conflict) as well as a scene with Nephilim on what appears to be the Elsa that never happens. All of this is done in the Episode 1 graphics.

Here's a link YouTube - Xenosaga: Episode I 2001 Trailer Its long by the way

After Episode 2 was released, Soraya Saga left the company and wrote in her blog about some of the strife going on in Monolith Soft and mentioned in rather good detail everything that was cut from Episode 2, mostly the plot that became Episode 3 such as Yuriev's rebellion, KOS-MOS learning her identity, Shion discovering the truth about the Miltain Conflict, and the confrontations with the Testaments. A few weeks later, her entry was removed and she apologized. But it seem to show that Episode 2 was gutted to make another entry...

Its unknown what Episode 4 and 5 were suppose to be but apparently they were in developmental around the time Episode 2 was finished. It is possible that some of their plots may have found their way into Episode 3.