From my understanding, the 5mw limit doesn't necessarily apply when a laser is scanned and has appropriate interlocks. For example the valve lighthouse (VR base station) is classified as class 1, but contains class 3 laser sources.

I think the scanning laser path is more likely to be what you want. Projection-based solutions will probably end up being a lot larger (and more power hungry), as I think you'd need a reasonable amount of quality optics to make anything resembling a sharp line at 1m distance from anything described as a 'small' gadget.