To me, option one sounds like what's in the game at the moment except with the players that aren't they because they legally can't be included. In any case, that was my choice.
The thing is, the same licensing issues are going to face the production team whether they do the current system or the top 10 teams in league history.
Unless they do it like they did with including NBA Live 95 for the PS2 versions of Live 2005 (WHERE THEY HAD PLAYERS WITH NO NAMES, JUST SKIN COLORS AND NUMBERS).