At the end of Arcatis II, Bob is knocked off the airship, the Angels save them and take them all to the Sky Temple, but fail to rescue Bob.

At the beginning of Arcatis III, Axel is the main character. Celena shows them Bob's body and explains that they just barely managed to save his life, but his soul is gone. He can't use magic or anything and is pretty useless.
They try to talk to Bob's soul in the unnamed heaven-like afterlife, but he's not there.

Axel learns that he can now use the Lion Blade, but it turns into a spear, since that's his weapon of choice.
Axel, Joe, Cathy, and Mady leave to find the last crystal for the Lion Blade.
Kevin and Steve leave to lead the White Knights and help with the war (Arcatis, Polraud, Kelless, the Elves, and the White Knights, vs. a crap ton of demons.)
The Angels attempt to destroy Olrig's new mana orb, which was created in the second game, and close the portal to the demon world.
Bob's soul meets Leon's and he shows him what happened 2000 years ago. He's later returned to his body somehow to go help.