That's exactly what it was. The Devs said what you saw at the end of ME2 was just the brain core a Reaper would be built around. It's implied that at the heart of every Reaper squid is an embryo that resembles the species it was created from.
Why didn't we see something like that in that derelict reaper orbiting that dwarf planet then? And more importantly why does the illusive man just mention it like that out of the blue? Ok forget that one.
We learn the protheans didn't really stand a fight against the reapers (even though they were far more advanced than anyone in the new galaxy), so they got to live as slaves to the reaper Gods. So, by this logic in the cycles before there must have been quite a few species that could stand against the reapers as such they were picked to live among them? As an abomination of themselves stuck inside a giant squid? Makes sense.
That would mean that the people getting processed actually would have lived on forever inside that phoetus and destroying it was actually the worst decision ever made by Shepard... if that was the case why didn't they just spoke about it to shepard?
Also their contrived relationship with Shepard: they don't hesitate killing him/her off, just to be hopeful afterwards to recover at least something of his/her body. The next time round they take great care to capture him/her, then they just want to finish him/her off again. Those squids don't no what they're doing.
Pretty obvious the devs would agree with you, it was a mistake on their part. Sometimes less is more and during development they probably thought a long explanation there would slow the ending down. As it stands though Shepard could simply have got a vision like he did in ME1 which would have done enough.
You just hit the nail on the head with that! That's the biggest complaint about the game I have. The devs went out of their way stating the game is about Shepard, it's Shepard's story. That IS BLATANTLY WRONG! He/she gets to do... NOTHING. His/her character also doesn't evolve throughout the "plot", he/she has no arc, he/she is just a puppet. In ME1 he/she had that prothean cypher, it made him/her special. He/she could do things no one else could do. Liara was particularly fond of it...
Why was that never put to good use? (except that one vision he got on that sidemission)
I mean you could have switched that Shepard fanboy with Shepard, wouldn't have made a difference. Really...