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An intermediate version of #2 would be to give Windows ownership (IOMMU) of the GPU, mouse/touch and USB. This would cover the most problematic devices. The rest of the hardware could be virtualized by Linux, which would make a huge amount of Linux software available as local web services. Or create a market for a Windows X server to run Linux desktop apps.

Have you considered Qubes for option 2?

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I'm certainly interested in trying it out! I've really only gotten hands on with virtualizing Linux within itself. Being more advanced than the average user I've never had much of a desire for running Windows apps within Linux (just switch partitions), and I definitely try to roll with option 1 for personal purposes. I love trying out all the different kinds of OSes. I'll take a look at Qubes though; even though I'm not dependent on Windows, investigating ways to help others break their dependence is highly beneficial for everybody including myself.

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