In a recent post Iron Man 2 interview with MTV, Favreau reiterated his desire to use the Mandarin in the next film, but also made it clear there could be some problems...
Favreau: "You have to do The Mandarin. The problem with The Mandarin is, the way it's depicted in the comic books, you don't want to see that. He also has 10 magical rings, and it just doesn't feel right for our thing, so it's either tech-based or the rings are not really rings."
Favreau seems to have the nature of The Mandarin's rings all wrong, since they aren't magical at all but technological. Even so, I would disagree with him on the point, since one of the more intriguing angles of the Iron Man series is his disbelief in magic. It's the old science vs. magic argument that has been running through comics for quite some time, and it's always fun to explore. Stark's mindset on that subject also makes his relationship with the thunder god, Thor, more interesting since the bulk of Thor's powers are obviously divine and magical in nature. Favreau seems to have figured that out to some extent, though, but realizes that the logistics of a third film could be problematic thanks to the expanding universe.
"What's going to have happened by then?With 'Thor,' you're going to have all this supernatural stuff happening and magic and there's a lot of stuff going on in the world. If it's going to match the comic books, it's going to be incredibly complex for film."
That's an understatement. I can see Favreau's point, but I think he's putting too much emphasis on matching the tone of the other Marvel movies. He doesn't really have to do that. Thor is the mythical aspect of the Marvel U, while Iron Man is the technology side, and Captain America is the political/straight superheroics side. Combining these seemingly disparate elements for The Avengers might be tricky, but it shouldn't stand in the way of Iron Man 3.
As for the Mandarin, he is Tony Stark's greatest enemy. An Asian-American trained in science, technology, and physical combat since his birth. In that, he's a lot like Stark. At some point, the Mandarin discovered the corpse an alien, along with the ten rings which were used to power the alien's spacecraft. He mastered the powers each ring posessed, wielding them with terrifying cruelty. The Mandarin studied and mastered the technology of alien races, which he has used to very nearly destroy Iron Man on numerous occasions.
