I think its probably the best way to go for a new AAA game. I hope fans understand that a direct continuation from exactly where Defiance left off is absolutely not financially viable - the story that was going to be Legacy of Kain The Dark Prophecy is never going to come about.
Still, Nosgoth's timeline is incredibly rich. Developers could pick a multitude of settings to start a distant continuation. A few examples:
-A human living in Nosgoth's forgotten history, trying to live his/her life while the god-like Ancients and Hylden battle their soul war. The Elder God senses that the time of the old races is coming to its end, and whispers to the human protagonist ways to accelerate the end of the war.
-Vorador prequel - the adventures of the first human vampire. The era would be a few decades into human rule of Nosgoth, the Pillar Guardians are still trying to understand what it means to rule a world that is recovering from the wars of fallen gods. Enter Vorador, a human turned into a vampire by necessity of the dying Ancients as a way of preserving their bloodline. (Denis Dyack actually expressed an interest in this path about 15 years ago)
-Early Kain Empire era. Play a newly-recruited vampire to one of the clans, as the Vampire Empire is conquering the planet. For some reason, the protagonist is different to the rest of his/her vampire kin, and fights to hold on to their humanity - as Kain himself did in his fledgling incarnation.
-Post Soul Reaver era. Play a human in the post-apocalyptic era in which Nosgoth is on the very edge of collapse. The Hylden are returning, time-travelling Ancients are emerging having followed Kain's timestream, and the Elder God is preparing for a huge Soul buffet - it will consume enough souls to allow it to detach itself from Nosgoth, and be so engorged that it can sustain itself through the long journey between dimensions - to latch onto a newer, fresher world, to begin its parasitism again. You have to stop it.
That's me just throwing ideas out, but I like to think they could all work as distant continuations.
Agreed.
Though I think there is room for Blood Omen / Soul Reaver remaster, to generate interest in the mythos.
Of the options you gave earlier, I think 4 would be the best way to start to give long time fans the answers they've been waiting for while introducing new ones to the back story.
Much of Soul Reaver 2 and Defiance involved Raziel and to a lesser extent, Kain learning of Nosgoth's past by inspecting the various murals in the forge temples. Also, with the exception of a few critical events; the abyss, sparing Kain and eventually purifying him, Raziel's story is mostly inconsequential to Kain's quest to safe Nosgoth. All of that can be summarised in a few sentences and elaborated upon only as needed.
Something like "It had been foretold that my son Raziel might be the key to changing my fate, but in order for that to happen, I would need to subject him to centuries of torment in the abyss. He emerged bent on revenge and endowed with the means to destroy me. Having lured him across the centuries, he eventually discovered the true author of both our destinies. Unable to escape his own fate to be trapped inside this blade, he conceded to rewrite my own instead. He became the Soul Reaver and in doing so, healed me of the corruption that was poisoning the land and revealed to me the false god who had deceived us all."
Characters like Vorador, Janos and Mortanius lived through the events of the murals, so experiencing them through the eyes of those characters, would go a long way to getting new fans up to speed on those events while at the same time giving old fans a far more detailed account than they could ever get from the murals. If it's in the past, a few of the events of the previous games could be depicted in prophecy as opposed to historical record.
Perhaps we'd even learn information that Kain himself doesn't yet know of and that these characters do.
Restarting an unfinished story that has thousands of years of history to explore only shows a lack of imagination, and obviously using any major character in the series has the option of circling back around to Kain's primary quest eventually.
An option you didn't consider would be something like showing us what Kain was up to in Soul Reaver 1 and 2 while Raziel wasn't around. There could be all kinds of secrets revealed from that perspective.
Another good option would be to have a game as a newly created Lieutenant Raziel. When Raziel was first made a vampire, he had lost all the memories of his past, so he'd be discovering everything about the world around him for the first time just like any newcomers to the series would be, so that's a really good jumping on point.
Another one you didn't consider was a J.J. Abrams / Brian Singer style reboot like Star Trek and X-Men respectively. With all the time travelling that goes on is the series and the new changes to history from the SR2 paradox still playing out, Blood Omen 1 and the events immediately afterwards might have happened very differently. Perhaps the young Kain side of Dark Prophecy could be made into it's own game, with future Kain only making a cameo for now. At least until more of the story is recapped.
EDIT: Sorry, I might have skimmed over a few parts of your post. It looks like some of my points might have been close to what you were already saying.
EDIT: 2: I think the Vorador based game is the one I keep coming back to every time I think about what would be the best way to continue. Since Paul Lukather passed away, I've had J. K. Simmons in mind as a close match for the voice.