Okay, for 1. you'd have to do two fetches to get stuff into the I-cache (but not if it's part of the same cache line, option 2.) and of course you're going to reduce instruction density because you're using up cache, but there's nothing you can do about that, but at least it would allow n-bit instructions to be genuinely n-bits long which is a big advantage.
That this hasn't been done before to my knowledge is proof that it's a rotten idea, but can the experts here please explain why – thanks