So I've been doing some research into why sequels always seem to suck so bad. Obviously there are a few exceptions, such as LotR, Back to the Future, and Toy Story. But why are those so good, where the rest are godawful?
The first key point is greed. If a movie does well, the investors get money. Everybody wants more money, so they'll back up a sequel to get more money. There is no passion in a sequel spawned by greed. It's like marrying a person for their money. This spawns a movie that is total and utter garbage, because a movie without passion cannot succeed. You need someone to really care about the movie. If it's just a job that needs to get done to the filmmakers, there's really no way that it can work. The movie will feel like just another day at work.
The second key point is story. This is what most sequels lack that the movies I named above don't. Usually, when the filmmakers are done with a movie, they're done. They ship it off to the theaters and start on their next project. If they get called back to shoot a sequel, it's like shooting an entirely new movie. They're starting off at the beginning again. It feels like two different movies... there's a disconnect between the first and the second. In a successful sequel, such as LotR, it feels like one really long movie, and you can watch them one after another without getting bored of the story. The same thing happens with good TV shows; it feels like a story that just keeps going. If there's that gap between segments, it'll get boring quick. You can't connect with it as well.
So, where does this put Avatar? Avatar fulfills the first requirement hands down. This story has been James Cameron's dream project for fifteen years. He really cares about the story, and he wants to give everyone the best movie he can.
As for the second requirement, it really depends. There's no way to really know whether he'll pull it off, but I would say that if he plays his cards right, it'll be really easy for him to put out a really good sequel. But if this fails, the entire thing will go down the drain.