What if Phantasm II never happened...

I literally just came to the same conclusion. Remove the first five minutes from this film, and replace it with the first several minutes of the second one. All you need from the second film is to show a portion of the montage where Reggie builds the four barrel shotgun so we know where it came from, and just show the entire opening sequence with Reggie fending off Lurkers and jumping out of a window with Mike before the house blows up. There is a portion in the beginning of this movie where we see Jody's car accident, and it's literally just a few cuts of Mike and Reggie's car accident from the second film. That part can stay in the film. The only thing that would need to be cut out from this film, other than the first 5 minutes, would be the brief scene where Tim finds a picture of Reggie's wife and daughter in his bag. This character bit of Reggie's from the second film always felt out of place, especially since after they die, he goes back to trying to score again, and they barely get mentioned. You could literally just replace Reggie's family funeral scene in the second film with the scene in Austin Powers: The Spy Who Shagged Me where Austin goes "Wait a tick, that means I'm single again! OH BEHAVE!"

This film literally opens up by erasing the events of the second film by killing off Liz. By killing her off, it just shows how kind of pointless the events of the second film were. It's like the Walking Dead, where they spent half of the fifth season trying to get a character back from a group of bad people, only for that character to die within minutes of being reunited with the group. Jokes aside, you can watch the first one, and almost skip immediately to this one. While many hate this film for having too much going on, and don't like some of the comedy and new characters, it feels like an actual sequel with more development of the plot, especially when Michael sees Jody when he's going towards the light in the beginning. When you watch the second film, and then this one, Jody's sudden reappearance feels jarring, and the revelation of him being a sphere didn't feel too shocking. By skipping straight to this one, his appearance feels more smooth and the revelation of him being a sphere would be shocking.

Yes, this film is a lot better than the 2nd one. While it still has a bit of the action feel from the 2nd one, it also has more of the horror feel from the 1st and that's a good thing. Plus, I felt the characters in this movie were better as well.