Angel Sanctuary/WMG

The entire manga is the result of Katou's dying acid trip.
Think about it. Katou invents Setsuna and Sara as a means to cope with his own problems with Brother Sister Incest and creates Uriel as a surrogate father figure to replace his real one. Katou's memory problems occasionally seem to correspond with the manga getting crackier than normal, plus, things wrap themselves up (comparatively) neatly just two volumes after Katou gets Killed Off for Real.

Kira meant for Setsuna to become Alexiel.
His decision to put Setsuna's spirit in Alexiel's body was premeditated during the ten or so chapters he spent staring at her corpse in the crystal. Kira assumed if Alexiel's original spirit and her body were reunited, Setsuna's consciousness would disappear and Alexiel would reemerge. The fact that he was wrong, more than anything, accounts for his depression during the rest of the manga.
 * It was pretty obvious, as Kira said that Setsuna was his wife of sorts. He wouldn't be caught dead having an affair with a man.
 * I'm not sure if it's so much that Kira wouldn't have an affair with a man than it is that Setsuna's much more interested in his sister. I don't know, considering Kira wholeheartedly condones incest, I don't picture him as someone that would be fazed by homosexuality.
 * I think it was more that, while Kira sees Setsuna as his friend with aspects of Alexiel, Kira/Lucifer is in love with Alexiel. So while he might have thought it'd be cool and all for Setsuna and Sara to live happily ever after, he would still have preferred that he and Alexiel get their happy ending. He, like everyone else, is a selfish being.

Sara and Setsuna will eventually have a child
and it will be Kato's reincarnation

Alexiel wasn't an angel after all, but a Shinigami.
And Kira was, in fact, her Zanpakuto spirit. She just was thrown into a different dimension, or a Lotus Eater Machine; she could even be the Soul Society King as well. What, it makes a bit more sense than the several Instrumentality and Time Lord theories you see out there!