A lot of the things I immidiately came across and bitched about were either me just poking fun, (The stupidity of the 'I seek power, do you doesire power line' for example) or things that were legitamately dumb (Tim being in the second round of the tournament, Vanderkaum's outrageious stupidity), none of my real issues with the game came until pretty much near the end.
You had quite a few things that the plot just plain drops. Things like Rico's entire story. There are things that serve nor purpose, either symbolic or story wise, that were the dropped entirely nothing would change in game. The worst example of this is the council. I loved the council, they were great. But why were they really nescessary to anything? You get a lot of scenes with them, but it does nothing to help the overall plot. The slightly complex relationship between them, Krellian, and Cain was great at first, but due to a lack of any real interaction with the Council, it becomes moot. If it was just Krellian needing to subvert Cain, who stopped the activation of The Key, not one thing about the story would change.
The reason this bothers me so much is you have a lot of things going on that are completely pointless, yet disc 2 is nothing but a giant exposition dumb, as if they didn't have time to finish everything. All the important details are told in absurdly lengthy text dumps, yet there is all of this you do play through that is largely irrelevant and pointless.
Not to mention the shear stupidity of that smurfing fluffy thing, whose name escapes my mind. It kills the tension of Marie's scene where she goes to fight that giant mech. Not to mention the imagery of all the Gears being strung up to crosses is at best laughable when you see the giant crucified bunny man.
And while the Xeno-Redisigns did bother me, those designs were pretty much just cosmetic. The characters themselves remained pretty damned consistant from game to game. And I argue that even without the database, Xenosaga is by far the more ambitious plot of the two games, and did a hell of a lot better in terms of characters. At no point does anyone in your party feel like they really don't need to be there, a problem that happens with about half of your Xenogears cast. (Rico, Pupu, and Esmaralda could have been dropped entirely and you'd probably never notice the difference.)
And outside of story, Xenogears has some of the worst Dungeon designs I have ever experienced in an RPG. Effectively FF XIII being one giant hallway, beginning to end of the game, is about the only worse offender of bad Dungeon design.
Xenogears ended up being a ball of wasted potential, and some serious taxation on ones suspension of disbelief.
Edit: I know you have a response WOfly, but hold off. I want to have this argument with fresh blood.