There is no MPEG-3. I believe there was supposed to be for a time, but they rolled the changes into MPEG-2. You have to jump to MPEG-4 if you want to move 'up the scale' from MPEG-2.
That said, MPEG-4 isn't necessarily better than MPEG-1 or 2. It is a newer codec, so more efficient and theoretically you can get the same quality picture at a lower bitrate than MPEG-2. MPEG-4 also provides for all sorts of multi-media encoding- more than just simple compressed audio and video.