I believe that the Architect was implying that he would be willing to eradicate the human race, and lose them as a power source in order to incorporate Neo and upgrade the Matrix system to what I guess would be 7.0.
And I'm not sure whether Zion is part of another virtual universe created by the machines, or if they keep destroying Zion, allowing a few to survive to recreate the resistance (I'm guessing that implanted memories would have to play a part in this, but remember that even in the first movie, Morpheus stated that they were somewhat unsure what year it was, which could indicate that this war has lasted for far longer than a century. Given a lack of historical documents, or anyone old enough to remember life above ground, it must be relatively easy to manipulate people into the machines' version of history).