D-P,
I also recommend Option 3, because if you compromise very much on the center channel speaker (either with a SB or smallish speaker to keep down the height), sound wise you would probably be better off sending the center signal to more capable L/R speakers.
FWIW: In my family room, I run a phantom center for reasons similar to yours and have not missed the absence of a center channel speaker in that application. In my main HT, I run a center speaker in a more typical configuration (L/C/R are same speakers) and would not consider removing it, because it provides noticeable value in that application. In a previous HT iteration I had a smallish center and it never worked out very well (difficult dialogue, etc.)
Cheers,
XEagleDriver