Option 1 sounds good to me. They both could work, though option 1 is more streamline, and sounds like something that would have been done for CvS. It still holds the essence of the move, but "modernized" so to speak. I like it.
Option 1 it is.
On the subject of Issen though, I like how Waru/Chazz handled this for Haohmaru a bit better then the way you did it. I mean, it's essentially the same, yes, but the initial hit, into a dash back, then the slash through has more "OMMPH!"
I know the way you have it currently is straight from source, though it lacks impact. I think doing it the way Waru/Chazz did it for Haohmaru would give it a better feel overall. I think that super I mentioned earlier is a custom super made in MUGEN... Cause I looked through a showcase of SS2-6 for Genjuro, and didn't see the move anywhere in them.
Ye I think Chazzanova took that from fatalities and implemented it to both issen and ougi on rasetsu mode, it looks good but I would like to leave that for the lvl 3. Issen, as you said, works visually pretty much like in source (bouncing when blocked, stright hit). I'm using Chazzanova's BG also for a little bit of consistency.
You could always do it the NGBC way.
I had a similar idea of using rage, but may not fit what you are going for.
Spoiler, click to toggle visibilty
I made it so, Issen can only be used after it etc. So it could also work as a lvl3.
Spoiler, click to toggle visibilty
[youtube]https://youtu.be/LtyucTbVslY[/youtube]
You're using rage explosion as a juggle reset? Not sure if Splash Fount should be able to super cancel from Splash Fount. I guess you're adapting her more into a sort of MvC/arcsys/anime gameplay? It's kinda hard to follow but I think that she Splash Fount into rage explosion into splash fount into wft?
Don't really know the specifics of your system but I'm going for something more slow a less combo oriented.
Though the effects are looking good.
This is the super and the FX I was talking about:
Spoiler, click to toggle visibilty
[youtube]http://www.youtube.com/watch?v=g-YZ_GOzTlA&feature=youtu.be[/youtube]
[youtube]http://www.youtube.com/watch?v=vjovRxXWHJU&feature=youtu.be[/youtube]
Took me a while to find this, cuz it's some way back shit. Just wanted you to see the super I was referring to. I don't think it's a official super though, so disregard. Also, this is the Genjuro I was talking about. Now Arpa, don't jump down my throat about this. The Genjuro wasn't very good, we know this. I'm not suggesting he use it as any type of reference. Though the FX/SFX for Issen, are very clean and unique/befitting for Genjuro. Just throwing it out there. Whether you(Chameleon) do or don't, it's entirely up to you man.
Not gonna lie, those effects do look really badass. Though they seem to be more fitting for a high impact lvl 3 instead of a lvl 2. I might check them out in the future for Bust Mode, where Issen might be his lvl 3 (being more accurate to ssiv where you go issen from rage exp)
Totally agree, those FX look sick AF 
Also, I got inspired and I made some palettes based on the SS 3D games, also all psychopaths as Genjuro:

Haito Kanakura from Warriors Rage

Yaci Izanagi, also from Warriors Rage

Deku (Haohmaru's evil clone) from the first SS64... but also could count as Asura from SS64-2 
I hope you like them 
I do like them, thanks a lot. Never played SS 3d games and I don't have any plans on doing it (besides 2019) but hey, can't deny those colors are really nice. Thanks.
What do you mean don't get on your throat Divinewolf? I thought you liked erotic asphyxiation...
* I see very noticeable issues with the slashing fx

should be layered behind him like


is a bit off sync from

Both issues fixed, added a modify explod on first since that slash fx is both on top and behind genjuro depending on the frame of the animation.
* For the throw, the opponent should slide a bit before the kick as they're being pushed. As of right now it looks like Genjuro is aggressively making the opponent talk to the hand.
- Fixed, p2 is being pushed a little bit now.
* In general Genjuro feels too weighted even by CVS standards. I feel more like I'm playing Samurai Shodown 3 all over again. Perhaps I'm spoiled by how light footed he can be in SS4-SS5sp.
- You're the third or fourth person to point this out, and I was about to tell you the same thing I said in previous post. But I decided to revisit velocities using Jesuszilla's tool. I was previously using Chazzanova's velocities from his Haohmaru as reference since he's using this very same system. Turns out they were not accurate (I think they're set to 1.0 velocity when they should be in x1.25) and I also messed things up while changing data from state 40. I'm working on fixing this, all of Genjuro's x velocities are fixed but I'm working on jump velocities to be as precise as posible. I'll post an update once they're 100% fixed. Thanks for being persistent with this issue.