There is nothing inherently wrong with sequels.
I would like to see Toy Story 3 as a full feature film done by John Lasseter and his team at Pixar. I
know it would be good.
However, if Disney were to do it without Pixar then all bets are off. Especially if Disney did it as a direct to video release. We all know that Disney is capable of making excellent quality movies, but based on recent years, obviously there is no guarantee that they will always utilize that ability.
Also, although Disney apparently has the rights to make a Toy Story 3 without approval from Pixar, I do not believe that Pixar would be required to provide Disney with access to all of the Toy Story 3D models, textures, backgrounds, etc that have already been created. So if Pixar did not want the sequel, Disney would most likely have to start from scratch. Considering the complexity of 3D models and Disney's relatively inexperience in that arena, it would be rather difficult and likely expensive for them to try to duplicate the look and feel and quality of the previous movies.
Last but not least is the issue of the voice talent. If Pixar did Toy Story 3, they could probably get back most, if not all, of the previous actors because everyone would know that it was going to be good and the previous movies with Pixar were such a positive experience. However, Disney doing it without Pixar would have more difficulty drawing the actors back. Disney sequels already tend to have a bad name and a Disney sequel to Pixar would certainly generate a lot of negative skepticism in the media and among fans. The big name actors are not going to line up to be a part of a movie that gets bad reviews before it is even being made.
Without the same voice talent and without the previous 3D models, the movie would not fit as well with the previous movies. Since the previous movies were so good, this would be bad for the new movie.
Thus I would be surprised if Disney chose to make a Toy Story 3 without Pixar because I hope that they are not that dumb, but unfortunately I am not fully convinced. After all, they made Teacher's Pet.
Anyway, my hope is that the upcoming stockholder meeting helps facilitate a speedy removal of Eisner and some other changes in the board that will lead to Disney re-opening negotiations with Pixar. Then Pixar can make a Toy Story 3 that we will all love and cherish.