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There should be no manifest embedded into wininst, because then the cases which Issue 4120 fixed (a CRT installed into a local folder, instead of system-wide, due to limited access rights), will 'break' again: the installer can then no longer work unless there is a system-wide installation of the CRT.
Option #1, #2 and #3 all sound reasonable (and #2 is the current situation).
I have some doubts about option #4: it is a very specific use case, and then the whole benefit of issue 4120 is lost, because stripping runtimes would have to be removed again. Why is putting a separate manifest file next to the DLL not an option? Combined with #3 (allow extension developer to disable embedding of manifests) a separate manifest can fix the problem.