•    More good characters, the character's can tend to be interesting, there should be more of them
• Better physics, the physics in the most recent Twisted Metal were pretty poor, and the controls were too sensetive.
• More levels, don't get me wrong, most of the TM games have a good amount of levels, but if they were to put this sequel on, say, the PS3, then they'd really have to bump up the amount of tracks.

What would you want out of a Twisted Metal sequel?

i've actually been playing through of my twisted metal games lately. so much fun and memories. 
i'd have to say more levels def. and more destructible environments (like you could blow up all the buildings and stuff) and a great car creation system.  
that's all i actually want, twisted metal is fine for me how it is 

Id want it to be a vigilante 8  sequel, or the awesome characters and gameplay from it.

Cars with guns on them.

" Cars with guns on them. "

I can't really think of anything that was seriously wrong with any of the Twisted Metal games, but I think I enjoyed the first one the most because it was a new concept in a game really.
 
Imagine if they could give you the feel of the cars in Burnout Paradise but obviously with the TM action, that sort of physics would be amazing.

Metal that's twisted.