Here would be my personal thoughts about a sequel:

More Factions

No game in the Brutal Legend franchise would be complete if sequels to the primogenitor installment didn't have more factions to choose from. It wouldn't make sense to have just three factions for every single installment in the franchise. Personally, I'd like to see MANY factions, each one representing a different genre of metal of course. Hands down I'd like to see Lionwhyte as a playable faction of course, but as for other potential factions, if DoubleFine does this franchise justice, perhaps they can represent genres that aren't even metal (like a Pop/Rap/Electronica faction with a cyberpunk/alien theme). I'd also like each faction to have its own singleplayer campaign just like Ironheade does in the first installment. And taking a page from the game C&C Kane's Wrath, I would also like each main faction to have two or more sub-factions to choose from.

Generals

As stated above, I would like to see more factions in a Brutal Legend sequel. But no faction or subfaction would be complete without a General to lead them. In this case, subfactions would have different Generals and different solos for them. Imagine having a subfaction of Ironheade led by Lita or the Kill Master.

Generals would also be able to attack while in flying mode, which will play in very nicely with the new unit type I'd like to see in a sequel.

New Unit Types

In keeping with the idea that Generals should be able to attack whilst in flying mode, I would like to see flying units. They can only be attacked by ranged ground units or by other flying units, for which there will be melee and ranged just like ground units. Some flying units will be treated as infantry whilst others will be considered vehicles. I'd also like to see maps where you can only build flying units, like a map consisting of floating sky-islands.

Burrowing units, which can burrow under enemy lines to attack whatever they're protecting (like a Merch Booth or stage). You can't attack burrowed units while underground, but I can envision them being used as building-destroyers.

...And finally transporter units, where you can load up units inside them and ferry them around the battlefield. These would sync nicely with the airborne maps where you would rely on them to fly your units from island to island to capture fan geysers or attack victory points and the enemy stage. The drawback being that transport units would be very mediocre as offensive units themselves, and if they are destroyed, so will any units they are carrying.

Expanded Unit Upgrades

The unit upgrade system in the first game was mediocre. I'd like to see a more fleshed-out system of upgrading your units, like say an upgrade for the Headsplitter that fires a homing missile, or an upgrade for the Organist that turns it into an MLRS truck (shooting Eyes of Sorrow vertically from its organ pipes of course).

Uber Units

In keeping with the new unit types introduced, each faction should have three Uber Units that require a max-level stage: one infantry, one vehicle, one air unit. They would be the same for the faction and its subfactions and you can have only one at a time.

More Structures

You should be able to build defensive structures and traps like minefields and palisades to impede advancing armies, as well as towers to combat the various unit types. And also have support structures that you can garrison units in, as well as provide buffs and debuffs.