The Mandarin was a huge disappointment.
When you have an army of mutants, freaking Norse gods and all kinds of aliens you may just as well throw in ten alien rings that unlock superhuman powers (Clarke's "Any sufficiently advanced technology is indistinguishable from magic." comes to mind) and some megalomaniac whose ego trip makes Stark seem humble in comparison.
But even with a handicap like that they still delivered an entertaining piece of popcorn cinema that made up for many of the shortcomings of the second movie.
It would still feel weird if it was magic, since this was an Iron Man movie, not a Thor or Avengers movie. Even though they are connected, they are also their own seperate franchises. And in the movie-part of the Iron Man franchise, magic and aliens don't really play a big part. They kinda do a bit now after Avengers, granted, but it's not part of the mythology of the movies I guess.
But then again, I loved how they handled the Mandarin in this movie, so I suppose my opinion is slightly biased.