I don’t feel knowledgeable enough to make sensible judgements about implementation issues here, so my thoughts are fairly high level and more user than builder or implementor oriented.
As a user, my preference was always 3, but until @Fraser intervened, it seemed pointless to advocate that based on what was said in the OP, because I couldn’t address the objections made against it.
As a user, I’ve never used Google Docs to a significant extent, so I think of filesystems in terms of Windows & Linux, particularly backup/restore (as in the kind of applications Fraser mentioned, and similar) and assume (perhaps incorrectly) that those cover most common user expectations and use cases well.
For anything else, of course providing the low level tools is very important.
So with the caveats about my input I’ve given, my preference is for the NFS level functionality include the ability to really roll back to version based on directory level, including deleted files. That makes it easy to restore whole trees, and even to find a particular version of a file at a given date even though the file versions aren’t indexed separately (but that would then be fairly easy to add in an App).
In this I don’t have much sense of performance issues, and I do agree that thinking differently with this new, er [hesitates,] paradigm [ducks] is both where the gold lies, and bloody difficult.