Isoc and Gate spoke in very different capacities. Gate admitted that he created the Nightmare based on his research on Zero. Isoc claimed that the Nightmare actually was Zero, as in, Zero was directly responsible. You're blending two very different stories together and claiming them to lead to a single end whereas in fact the two are not even compatible, and thus your point could not possibly be more invalid. Gate's word, and Gate's alone, holds. Isoc's does not. The mere fact that Zero exists separate from the Nightmare invalidates Isoc's announcement.
Despite you saying this point is invalid, it sounds like you actually agree with the major point that Zero as the source of the Nightmare was proven... just not by Isoc. You wish to quibble? Lets. Isoc claimed in his announcement that a ghost of Zero was the source of the Nightmare phenomenon. Before anyone knew that the Zero Nightmare was a fake, the insinuation is that this apparition is the Zero who disappeared weeks ago and is now running rampant spreading this menace. Ergo, the world at large is led to believe that Zero is the source of the Nightmare, effecting public opinion of him quite adversely. In the scene where Zero does come back, even he knows that toy has been smearing his reputation, and he's been holed off who knows where. Regaining the populace's faith in Zero's innocence is an uphill battle for the Hunters and not something easily swept under the table due to the very public character attack from his accusers. The whole world's doubts over Zero don't necessarily evaporate immediately after Zero Nightmare is defeated (how and when do the Hunters relay this news of clearing Zero's name to the world?). Even given that Zero and the Zero Nightmare are two separate (though intricately linked) entities, the initial accusation that Zero is the source of the virus is still confirmed, though not in quite the same manner Isoc insinuated. I think the tarnished reputation and sense of confused hysteria surrounding the incident may add an important atmosphere of distrust in that compounds upon the actual truth behind the matter--that the Nightmare really did come from Zero's DNA. Negative public opinion might even contribute to the decision made by the humans that he should be sealed. That's why I mentioned it as being a relevant step.
Zero himself knew he was gaining power in response to the Sigma Virus alone. The Hunters did not; Lifesaver was suspicious of Zero's reaction to antiviruses.
Maybe you missed that party, but as I've discussed at Zan's behest before, the MMX5 manual differs from the Rockman X5 manual, in saying that Lifesaver becomes concerned over Zero's virus reaction, not antivirus one. The Hunters recognized that Zero was infected over the course of the game, and the conversation with Signas was over how Zero was reacting to the virus itself. They know he is carrying the sigma virus, and getting stronger from it. But they do not understand all which that implicates, and the immediate fate of the world is at that time more important to Signas than figuring out what exactly can be learned from Zero's unique virus situation.
That Zero can be exploited is old news; it's been happening since X2. What is key to Zero's seal is when the leap is made from the enemy being able to use him, which the Hunters already know, to Zero's mere presence constituting a threat, which they do not.
The only way the Hunters see him used in X2 is either as a bargaining chip to entice X to battle the X-Hunters, or as an enemy who was manipulated by some manner of brainwashing but defeated and returned to normal (the latter apparently being the "didn't happen" scenario). It doesn't seem that anyone had an inkling of Zero being the source of any virus at that point.
I'll also put forward this notion: To split the timeline at X6 requires X6 itself to present the split. It only works if X6 itself suggests it, and the "completed Zero ending" makes no explanation as to why Zero is being sealed. No additional information is gained while playing as Zero that does not come forward while playing as X. Thus we have a problem: While it is perfectly plausible for a change in Zero's judgment to bring about an early seal, that is not in the least what Inti told us. By telling us that it became known that Zero is inadvertently spreading the virus, Zero's seal cannot take place in the middle of the X-series unless that has come to light. At no point in X6 was that so.
Some things X6 expressed don't seem to be relevant anymore. At the time, the Zero sealing ending seemed best fitted to matching with X's "bad" ending, where Zero entrusts the world to X while he sets off to right something he feels he must do. Of course, the paths leading to those two endings didn't mesh. But just analyzing the Zero X6 ending by itself gives the impression that Zero's sealing is of his own choosing and entirely voluntary, even to the point where the scientist tries to talk him out of it because whatever it is shouldn't be a problem in his opinion. It seemed at the time that he simply wanted the virus data removed from his body, not so much to be a guinnea pig for Sigma Virus research. We're told his coma would last for 102 years. Following ZC's site, it sounds like Zero's decision could have been made for him, the emphasis is put on studying him over simply removing what was troubling him, and the 102 years thing has been questionable since MZOCW revealed the double sealing in the first place. These general discrepancies exist among the ending itself and what the Zero series backstory portrays as having happened. I believe these all are likely the result of the changing nature the Z series story development took between Z1 and Z2~ZX. When X6 came out, all of this was completely unforseen. The RPM book left this open and unanswered, perhaps simply because they didn't know how things would pan out yet themselves--the directions that both X7 and Z2 would take were still up in the air.
Zero actively spreading the virus might be one of those incongruities that changes/overwrites our past understanding of events. We may not have actually seen them run the tests that showed Zero's capacity to spread the virus in X6, but Cap/Inti still may have decided such a realization occurred in the Nightmare Incident's aftermath. We're already being told that the X6 seal didn't happen the exact same way we saw it happen. We don't have to wait for further explanation in the X series if this is that explanation.
By refusing to name MMZ's century (something I have brought up repeatedly and you have been either unwilling or unable to explain), Inti has still maintained enough leeway that the X-series can do whatever it wants without dropping any games.
They apparently shied away from naming MMZ's century in press materials from the get-go, although Higurashi seemed to think he knew when. Maybe they didn't name it because it's always been their policy not to. Maybe they didn't because of the potential span with when the pre-X1 series events begin and when and for how long Zero's X6-ending sealing takes place (if longer than the 50 years of testing they presented in MZOCW) with adding in the Elf Wars and the post-Elf Wars seal, things could be pushed in their extremes to 23XX. Or, they could be leaving room to include X series games. Even though they are vague with the century, the 1XX years ago usage itself makes it difficult indeed to include Command Mission at all without great delay of the series' beginnings and very minimal estimates for all Zero's sealings, as we all quickly realized. For that purpose it would have been much better to use a timeline like the one in MZOCW where no relative dates are given. Just events in an ordered manner.
Even if they were to split, XCM limits the main X-series to 21XX anyway, not that a date change would accomplish much. And killing the heroes? Nobody in their right mind does that with a playable character, lest we get the suspiciously similar replacement for the fans to [sonic slicer] about. If Capcom were honestly open to that they would have had X take the series solo at X6, but they know better.
For character death, I was considering a grand finale option. Like how they almost wrapped things up in X5, except here their deaths would have weight and meaning because Capcom/Inafune wouldn't be planning thier resurrections before the blood is even dry. Perhaps something even more epic than Ragnarok (or for X, I don't think it would be too hard to find something more appeasing than Elpizo stabbing him). They could also just keep going and extending past even Command Mission's 22XX with no limit in sight. It all amounts to a chance for them to do things differently this time around.
That wasn't my point, though. With a split timeline, the ZERO-series backstory and the current storyline arc in the X-series would occur in the same span of time. In that span of time, the major elements which are reused from X8/XCM to ZXA, from ZERO to X8/XCM, very much acknowledge a similar history, even if there are key differences. We can never see X7~XCM as wholly mutually exclusive from ZERO/ZX.
Maybe I still don't get what you're saying, but if we're ever (more explicitly) told that the branching timeline system is what they have in mind, then mutually exclusive is exactly how we should see those games. Do you mean that they're like X's good ending vs X's bad ending in X5, where either road can be taken, and we assume that knowledge we learn in one (like X's dream of Elysium) still applies to the other, even if not expressed? More or less negating the possibility that the Zero series backstory/accounts of events differs at all from the earlier X series accounts, like I suggested the possibility of earlier? If that's what you're saying, it does make sense, only we'd still be left with the apparent inconsistencies that new materials have brought with them. It's all really just a question of what Capcom's stance is about it all.