One source is saying Favreau left because, with all the tying in with other Marvel properties like Avengers, Captain America, Thor, etc., he wasn't sure what to do with the movie and decided to bail (some of the SHIELD stuff in 2 felt tacked on, so I can certainly buy studio interference).
The other is saying that Favreau is now too expensive for the cost-conscious Disney film company, and he was encouraged to step aside.
It's kind of a shame that Fav's encounters with the comic book world have been so bad. Don't forget the Iron Man comic book series that he quit in the middle of because he was sick of the fanboys online bitching about what he was doing. And leave us not forget, he took a second-tier Marvel character and made him a huge public persona.
Favs is now doing Magic Kingdom instead. Between a new director and a muddled idea of incorporating EVERYTHING in the Marvel universe, I'm not sure IM3 is going to be all that great anymore. I know I'll miss Fav's steady hand at the helm.