I think it is patently untenable to uphold the notion that the Sabba Sutta is rigidly laying out the limits of knowledge. By this I mean that if one decides to interpret it to mean that all that is knowable are merely sights as sights, sounds as sounds, etc. then one could not possibly be a buddhist. For the result would be epistemological solipsism and one would have no reason to believe in other beings, or that someone now known as the Buddha ever existed, or that he ever detailed a path to liberation, or that the teachings on this path to liberation were memorized and passed down generation to generation until happenstance you stumbled across them and began rightly following that path (or perhaps unwittingly became an epistemological solipsist).
It seems to me that the Buddha left plenty of room for knowledge by inference, although given what I've gathered from the suttas the most important kind of knowledge, salvific knowledge, may more aptly be described as direct, i.e. not based on inference.
But then, I'm not sure it is fair to say that my assumption of the existence of other beings is built on inferences from my experience, that may just be an ex post facto philosophical justification.
Perhaps it is more the case that the assumption of the external world and external beings was built into the nature of my consciousness via cognitive structures present at birth that merely require activation by having certain types and quantities of experiences. To partially illustrate, there is not a time I can remember it not being obvious to me that the external world and other beings had a real and independent existence from me. Although it is also probably true that at some point in my early development I had no notion of externality or other beings/minds (and I mean notion in the broadest sense so as to also include non-linguistic perceptions, projections, associations and representations).
That aside, I think in the early buddhist texts the existence of other beings and the external world is taken for granted and as an item of knowledge would be either classed as direct knowledge or inferential knowledge. Whether one wants to say that we know other beings directly through built in tools of perception or through inference is ultimately inconsequential to the point at hand.
To reiterate, the point is simply that other beings are known to exist by the Buddha (or early buddhism if you prefer as we find it in the texts). And this thereby invalidates the possibility that it was the Buddha's intention in the Sabba Sutta to rigidly lay out the limits of knowledge. By rigidly laying out the limits of knowledge is meant that all we can know is that there was such and such an experience of visual phenomena that I happen to use such and such perceptual filters to classify and in no way can these visual phenomena or the perceptual filters used to classify them be considered a window to knowledge of the external world but all such experiences must only and ever be capable of producing knowledge of themselves, i.e. there was what I call a visual occurrence that I perceptually filtered in such and such a manner.
Anyway, I think the above does a minimally sufficient job of making this an open-and-shut case. Option 2 is therefore the reasonable choice. But I'd be interested to hear a reasoned opinion to the contrary by anyone who genuinely disagrees.
"I don't envision a single thing that, when developed & cultivated, leads to such great benefit as the mind. The mind, when developed & cultivated, leads to great benefit."
"I don't envision a single thing that, when undeveloped & uncultivated, brings about such suffering & stress as the mind. The mind, when undeveloped & uncultivated, brings about suffering & stress."