As you could probably guess from the other thread, I vote for #1 by a long shot. I am not a fan of "book report" attractions - I'd rather the attraction focus and engage a particular emotion. I think it's more likely to be successful that way, too, instead of leaving people wondering why anyone older than 4 would ride it (Little Mermaid, Finding Nemo). Romance would be a challenge, but definitely the way to go! (And there's lots of cool imagery from the movie you could use)
A couple other random thoughts:
1. I wouldn't feel obligated to follow the movie exactly if you go with option #1 - Mr. Toad did not go to hell and the Witch never smooshed Snow White under a giant gem in their respective films, but the point is to engage the guest's emotions with a new form, not retell the movie
2. Consider making everything a little oversized so you get a dog's eye view
3. If you go with #1, other characters could make cameos but I'd be wary of breaking the emotional state to have like an extended comic moment with the Siamese cats, for example
Or maybe there's some awesome I'm missing in #2?