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Theorists have attempted to make out that Smith is actually The One. Theorists are wrong.
Theorists have also attempted to say that the Architect acknowledged the Oracle as the one who created the systemic anamoly. However, the Architect does no such thing. He tells Neo that 99% of humans accepted this Matrix program as long as they were given the choice to reject it, even on a subconcious level. He does say that it was the Oracle that made this find. And "While this answer functioned, it was obviously fundamentally flawed, thus creating the otherwise contradictory systemic anomaly". The Oracle did not create the anamoly. In the words of the Merovingian "cause and effect". Even the Oracle is victim of this. Whilst her system functioned well enough, the fact that this subconcious choice existed caused some to reject the Matrix and seek the truth. The effect of this was the anamoly, manifested as the emergance of the One.
The Architect states "the function of the One is now to return to the Source, allowing a temporary dissemination of the code". When Smith absorbs Neo everybody plugged into the Matrix is given the code that the One carries. Allowing each person freedom if they want it.
We should not confuse the Matrix with the Source. While the people in the crops are connected to both the Matrix and the Source, Neo is not. If he were then there would be no need for him to have visited the Architect. Even when he enters the Matrix in the Machine City he is not connected to the Source. If he were then the Matrix would reload as soon as he was jacked in.
In truth the Matrix did not reload after both Neo's and Smith's ends. It became a world of Sati. Sati means "being". The Matrix world is let be at the end of Revolutions, everyone can just be. Everyone who wants out of the Matrix can be freed it is revealed.
The One has the ability to change the Matrix as he pleases. This is exactly what Neo did. By not returning to the Machine Source (and returning to Humanity's Source, which the Achitect talks of "Hope. It is the quintessential human delusion, simultaneously the source of your greatest strength and your greatest weakness.") and taking Smith's purpose and life, Neo accomplished what he set out for: ending the war and freeing humanity (as anyone who wants to be free will be). Not going to the Machine Source meant that Neo could go to Humanity's Source and give hope to all, as they can be free too.
Some have claimed Smith is The One. Yet Smith fails to satisfy the definition: a man was born into the Matrix, who found that he could change the world around him as he pleased. Can Smith change things in the Matrix? Yes. Was Smith born in the Matrix? Yes.
So what's the problem I hear you ask. The problem is that it says world, not Matrix. When Smith gets into the real world through Bane he fails miserably to change things to his pleasing. His attempt to kill Neo fails. In the scheme of things he doesn't effect anything. Not to mention the fact that Smith is not a man, just a program. There's no conspiracy. The Oracle had fed Neo bits and peices of information until he was ready to hear the full truth. As for the Oracle being Smith's mother - it's rubbish. Smith himself says "the great and powerful Oracle, at last we meet". If the Architect is the father of the Matrix, the Oracle is undoubtably the mother, hence the "well you'd know, mom".
Neo remade the Matrix as he wanted. The One freed the first humans let's not forget, yet Smith was not concerned with freeing anyone, he wanted to overtake them. Neo may have had predecessors but none of the were the Ones. They were thought to be the One, but they were not. Only Neo remade the Matrix, the others returned to the Machine Source and the Architect reloaded the Matrix.
Can Neo change the Matrix? Without a doubt - he deleted the Agent Smith programme! Can Neo change the real world then? Ending the war seems a good testament. He, unlike Smith, has the ability to change both the Matrix and real world (blowing up sentinels etc.). So... was Neo born in the Matrix? Yes...
He was. Don't believe me, huh? Well... prior to Morpheus finding him Neo let a simple life, a life of thirty odd years. Did it take 30 years for the Architect to balance the equation? No. It took very little time. It was not until Neo died and was reborn at the end of The Matrix that the balance was tilted. Not until he made a clear impact by deleting Smith. Then, off somewhere yonder, the Architect sent Smith back, as a failsafe if Neo did not choose to return to the Machine Source (after all if you've been remade with practically unlimited abilities you're going to rival The One, even if you haven't taken over billions of people). Neo was reborn as the One. Don't believe me? Well take the Oracle's word for it. She told Neo he wasn't the One... full stop? Nope. He had the gift, she said, but he was waiting for something. What? "The next life maybe". Only in his next life did he become The One.
Neo is the only One. He is the only one that remade the Matrix as he chose. Having died in the Matrix Revolutions and not returning to the Source meant it possible for Humanity to gain freedom and peace. This was the prophecy and it stands in the face of any scrutiny, despite predecessors being revealed, as they did not accomplish that which Neo did.
Is he dead? His body, yes. His mind, no. The Oracle believes they'll see him again. Deus Ex Machina has Neo's body carted off, perhaps for his mind to be dowloaded into the Machine Mainframe. If Neo is ever needed again, he'll return, like the prophecy attests.
Anyway... what was the Oracle's dangerous game? Playing Neo, Smith, everyone? No. She couldn't make the Architect, the creator of it all, believe Neo was the One if he wasn't. The real game was gambling her existence by allowing Smith to assimilate her, so that she may guide Neo towards martyrdom with her echoed words "everything that has a beginning has an end, Neo".
Did You Know?
Cypher's choice to return to the Matrix is echoed in the Animatrix episode Program. Find out more about Program.