I really didn't think Annihilation was that terrible. I could watch it more often than I could the first one mainly cuz the special fx in the first one looks extremely dated. since many of the characters that died had barely any character development or even had their names mentioned they could easily be brought back in future games. Mileena is already a clone so could just be made again, Ermac we now know is just a ball of spiritual essence or whatever so can come back, for all we know Jade and Rain could still be alive or somehow escaped off camera, Rain could easily have been lying when he said Kabal and Stryker were captured and killed, Smoke and Cyrax are cyborgs so can easily be rebuilt. and Johnny Cage came back to life in DA so I dont see how he can't come back in a movie, altho if he does that might seem somewhat silly. I'd say the next sequal just probably won't reference anything from Annihilation much and just move on and feature characters we haven't seen yet. I'd say the next movie will probably feature these:
Lui Kang
Kung Lao
Sonya
Jax
Kitana
Scorpion
Sub-Zero
Sektor
Tanya
Quan Chi
Kintaro
Jarek
Frost
Fui Jin
Lei Mei
Blaze
Molock
Kabal
Stryker
Onaga
Sindel

You make a great point, but you gotta admit, it was screwed up, the character development should have been better and the storyline kind of conflicted for a future sequel.