My own opinion (FWIW !) is that option 1 is your best bet.

I will be VERY surprised if EK improve on their offer here - although I would be happy to be proven wrong......

Sometimes the law is not quite as black & white as it might first seem. Despite the apparently clear case you feel there is in your favour, a judge could very easily take a different view. In particular, judges will expect a claimant to have made an effort to mitigate as much as possible the effects of any loss of benefit, financial or otherwise.

You were offered the option to travel in first class but decided against. Even if you are able to show that a schedule change from your original booked flight would have caused you material problems (and hence your choice to travel in business class instead), then Emirates will say that the reimbursement of 75% of the pro-rata cost of your first sector to DXB is correct compensation for that. And I feel that a judge will very likely agree.

Finally, I happen to think that (in this particular case at least) Emirates will not be fazed by any threat to pursue legal avenues. They will have some pretty good legal eagles of their own, and Customer Affairs will almost certainly have been guided by them when framing their final response.