He's even got the next villain for Tony Stark in mind.
"You've got to do The Mandarin," Favreau told MTV, going on to concede that the original comic book depiction of the super villain is not quite up to today's standards of cultural sensitivity.
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For the uninitiated, The Mandarin is a direct descendant of Genghis Khan, a martial arts master of such prowess that he's able to battle Iron Man barehanded (barehanded!), and gets his strength and other powers from 10 mystical rings he wears. Let's just say his look is a bit arch.
"You don't want to see that," admits Favreau.
But the real challenge facing Favreau in putting together a third adventure is that he has no idea what the Marvel universe will look like in a year or two.
Over the course of the next couple of summers we'll be seeing "Thor," "Captain America" and "The Avengers," all of which will shape the world that Iron Man inhabits, the our hero playing a major role in at least the last of them, if not all three.
But honestly, how hard can it be to come up with a decent story? Marvel's been cranking out Iron Man stories for 47 years now. They didn't come up with three decent plot lines in all that time?
As good a director as Favreau (the guy's made three very good movies in three distinct genres, so he's doing something right), at this point all he has to do is not mess up. Robert Downey Jr. and the suit can do all the heavy lifting.