I feel for me I would love to see a remaster that did try to expand the second disc. Though I would settle for a simple remaster that touches up the graphics and cleans up the translation as well.
I think my biggest issue with fixing the second disc is that I would want some of the original staff to be onboard for that kind of overhaul just to stay somewhat consistent with the rest of the game, though I also feel it's been so long for the staff that coming back and trying to expand on that part will always feel off no matter what.
I'm less inclined for a serious remake. While the idea of seeing Gears in Xenoblade graphics is very tempting to me, I just imagine the game would get overhauled to fit more modern gaming taste and I'm less inclined for that. Probably have the battle system turned into a boring action-rpg and then they would add a thousand samey side quests to do on the side, but maybe my cynicism is showing too much. Not to mention I imagine trying to adapt Xenogears into that style would still make the game not cost effective enough to be worthwhile.
Which is why I'm more content with just a slight graphical touch up like the ones seen for the SaGa remasters and a cleaner script. Getting Mitsuda to come back to do a new arrangement of the OST would be pretty snazzy as well as long as I can have the option to switch back to the original.