Whilst the R3 project began as a Metro/100 replacement, it quickly evolved away from that idea for a number of reasons; the sudden increase in sales of the 100 being one, and the sheer size of the R3 (being initially based on R8 underpinnings) - at the time it would have been far too big as a Metro replacement, and indeed when Rover stopped 100 production and tried to push the R3 as the alternative, a large proportion of potential buyers in the Metro size bracket turned away from Rover for that very reason.
As to R3 not being successful and basing a replacement 200 on HHRwould havew been, it is worth pointing out that the R3 was a bigger seller than HHR was, and hugely better in the later stages of MG Rover
The sad part about the replacements for the R3 is that BAe was starving Rover of the investment needed to fully participate in developing new models jointly with Honda - the in house cobbling together of R3 (which was quite a remarkably good car considering its very meagre development budget), and licence building the Honda Domani based Civic were the result, and were predictably underwhelming as a result.
Sadder still is that Honda were neither interested nor financially able to take full ownership of Rover at the time, so Keith's ramblings seem pretty fanciful to be honest.