The Sheppard issuse is a big deal gmeplay and story wise.
On one hand, Sheppard is who you are. This isn't a classic RPG where the character is drawn out for you and you're along for the ride, you actually chose to push Sheppard in whatever direction you wanted, he was a blank slate in the beginning.
If Sheppard is dead, it presents some obvious plot issues, killing the main character between games. If he is alive, it would be weird to start another character because for me at least, my Sheppard looks and acts like me, not to mention has my first name.
Gameplay wise though, if they did keep Sheppard alive and makes him the protagonist, it raises interesting issues. My Shep is maxed out in all stats, maxed out in equipment, how do you start a game with a character that can single-handedly take down entire armies? If I don't get to play sheppard, how am I supposed to adjust and assume the 2nd character I get to play is me if I already made a first "me" in the ME universe?