Thanks for this great explanation. I personally advocate method 2, this is done to keep consistent reporting of instances were a place was know by several names. This is how I deal with Historical Place name changes or where a place was called different things by different resident ethnic groups. My standard is to always put the name as it appears on a map today in the PLACe tag, with NOTEs and Citation Text (text contains the name from the actual source) used to explain the historical or contextual reason for the name being different from the PLACe tag and the actual source.
I keep the PLACe tag consistent to todays name so that my mapping software (I don't use FTM anymore) can locate the place when I build a map of important places for the individual, family or extracted group of people.