I had the Matrix within the Matrix theory almost instaneously, but lets think it a little more than just that, how about a theory I later had the Tri-Matrix.
We have the real, real world, where there are no humans but merely the machines who are controlling, maybe just the fielRAB that we were shown by Morpheus, the scorching of the sky merely a lie. Now down from this we have the Matrix, which is Zion etc, then of course the Matrix that is connected to Earth's Population.
Lastly, remember when Nero was put into the Matrix to start off with as in when he woke up and was freed, how do we not know that this was merely a delusion that was contained merely within his mind, with him actually residing within an institution after finally snapping becuase of his long search for Morpheus, his knowledge of computers would explain for the richness of the whole experience as well. I think this makes a lot of sense, due to the whole Morpheus speech of, "What if you had a dream which was so real you didnt know if you woke up from it."
A lucid dream could be a very apt explanation, would explain why there is a lack of exposure put on most of the population of Earth and a concentration on those around him.
Then it could all be a program that is in the mind of a machine, ala Matriculated.