Okay, this is what me and the best friend worked out yesterday. It's probably wrong, but there you go. It was late and we were having a sugar crash, go figure 😉 Anyway.
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In 'Kid's Story', Michael's old RSI in in the ground, a new one is created when he goes back in, we're assuming. So essentially there is at least one version of Michael in the Matrix at any given time.
Neo returns as the anomaly. His old RSI is discarded, but the now 'free' Smith uses his old RSI as a host (Agents need human RSIs to be a tangible, visible Agent) - this is why Smith can copy over the other Agent at the start of the Burly Brawl - essentially, the other Agent is 'human', or at least has a human host which he can latch onto. Smith can copy onto humans - it's like an Agent using a human host, only permanently.
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If this makes any sense I'll give you an award. It's what I wrote last night.
AI.