I can comment on option two, the 2332 cc Type 1:
I've really enjoyed my self-built 2332 and have had a lot of fun racing Street Legals most Friday nights. The Beetle is also a nice city cruiser, but a bit noisy if driven for more than an hour.(Subaru might be quieter). I'm currently running 10:1 CR which requires premium 91/94 octane and I have 204 HP to the wheels. The only thing to keep an eye on...is the valve springs, if you race a lot at high rpm's.