Is it better than the first one? No. Is it an X-Men 2 -> X-Men 3/Spider-Man 2 -> Spider-Man 3 fall from grace? Hell, no!
Whereas the first film was a study in the climb of Tony Stark's character from international playboy to iron clad defender of the people, the second film is more about the descent the pressures of being the defender has wrought on his mind, and the suit itself has wrought on his body.
Beginning with the press conference ending of the previous film, dubbed into Russian and viewed from the death bed of one of Howard Stark's (Tony's father) former co-engineers on the original ARC reactor, the film introduces Rourke's Ivan Vanko as the primary antagonist to Iron Man, while Sam Rockwell's Justin Hammer is to be the business thorn in Stark's side.
While Stockwell performs the role admirably, he's not as viable a threat to Stark as Jeff Bridges' calculating Obadiah Stane in the first film. In the comics continuity, he's Stark-lite just missing the extra 10% that makes Stark one of the most intelligent, and sought after, men on the planet. In the film, he goes after the same contracts, the same technology, and (without realising it) the same woman. None of these are successful, and only make him look less and less of a danger. Indeed, one of the lingering images of Hammer is someone who cannot even master fake tan, never mind rise to become the weapons developer of choice to the US government.
Gwyneth Paltrow picks up where she left off as Stark's assistant, Virginia "Pepper" Potts, and is becoming concerned by her employers increasingly erratic behaviour. This is only exacerbated when he promotes her to CEO, seeminly on a whim. While a capable assistant and confidant, it appears that running a massive multinational is beyond her powers and the stress starts to get to her.
Introduced into their relationship is Scarlett Johansson's Natalie Rushman. All bee sting lips and hourglass figure, her motives are unclear until the end of the second act.
Nick Fury, as portrayed by Samuel L. Jackson, is given a much larger role this time around, appearing in the film itself, instead of a post credits sequence. His appearances in the film contain several nods to developments across the wider Marvel film universe and future films.
The first film focussed primarily on Stark and the developement of the suit reflected his development as a person. The second film spreads its gaze a little too much, on Vanko's rise from ex-con to super villain, on Stark's descent, on Pepper's concerns, on Rhodes' emergence as War Machine, and the overall product suffers because of this. The final act, however, surpasses the original's final battle as Iron Man and War Machine unite to take on Hammer and Vanko's knock off drones.
The first of the summer blockbusters has set the standard, now it's up to the rest to surpass it.