One of the most obvious improvements would be to allow two players to dance simultaneously in co-op or versus. The addition of game modes would include a campaign mode, a fitness mode, and a party mode strictly for fun.
Some of the new features might include "Break-it Down Improvements." One of the problems with Dance Central was that when you did wrong moves, the game was vague about just what you did wrong. Some of the improvements might include showing with arrows just how the step was wrong, instead of just highlighting the limb in red. A feature that would allow a player to practice a certain dance step over and over would help as well.
Like Rock Band, player customization may also be implemented, allowing you to create your own dancer much like Rock Band allows the player to create their own rocker. An improved Dance Central Store would let players preview and purchase additional content including new songs, news dance moves, character outfits and other items.
Other features might include on-screen lyrics and perhaps a karaoke minigame in which other players who are not dancing actually sing the song. Not only that, but voice commands via Kinect could also be used for menu navigation.
Let us know what you'd like to see in Dance Central 2.