I've said it before and I'll say it again: French Revolution.
~ It's in the late 1700s, meaning that it's a leap forward in time from AC2, but also not terribly far away from the future.
~ It is a time period in which weapons such as swords and daggers weren't obsolete.
~ It's a time of extreme chaos, extreme political unrest, danger and suspicion, meaning plenty of gameplay opportunities and a suitable setting for a game featuring assassins.
~ There would be HUNDREDS of assassination opportunities. HUNDREDS, I TELL YOU.
~ There are dozens of historical figures, events, and places of interest that could be incorporated into the game, much like they were in AC2: Napoleon, Marie Antoinette, the execution of King Louis, the storming of the Bastille, the Reign of Terror, etc.
~ Just as you could explore famous landmarks in AC2 -- cathedrals, for example -- this could be perfectly possible here. (Somebody tell me they DON'T want to leap about the Palace of Versailles. TELL ME.)
~ The Assassins v. Templars story could be incorporated into the rebellion uprising of the lower-class against the upper-class (greedy Templars).
~ It would be set in a foreign country with a new foreign language to butcher, which Ubisoft seems to like doing with the series.
~ To the best of my knowledge, this setting hasn't been covered before.
~ I can't believe you need anymore reasons.
Victorian London would also be good, but I kinda groan to myself a little when I see the Feudal Japan and WW1/2 replies. I most definitely don't think it would be a wise move on Ubisoft's part to set AC3 entirely in the future. Yeah, we're going to HAVE to see more of Desmond at some point, but it's really the history that truly makes AssCreed unique: let's face it, it's not the actual stealth that's holding this series up. If it's set completely in 2012, it's almost lumping in its lot with everything else, and probably pretty badly, in comparison to other games with a modern-era setting (hint: lots).
Also, who likes Desmond. Seriously. I couldn't stand to play as him for a 10-20 hour game.