only the bros probably know for sure (don't read this if not seen MREL)

Rating: Null/10 (27 May 2003)

I personally believe that the real world (zion) is a matrix because Neo should have no magical powers in the real world
Morph says that agents can only overtake software that is still connected to the matrix but the freedom fighters aren't connected to the matrix they are actually hacking in so smith could not over take Bane because if the real world is 'real' then he isn't connected unless it is a matrix
final point is when Smith is giving his views on humanity in M he says that we accept a reality through pain and suffering and what would be more so than to wake up to a world where we have to run and hide from an army that we cannot fight so that it seems to be a more so real reality (hey sounds cool)