Option # 1 is probably the right one. ...They make a 6 gallon version, but that's overkill for handwashing- might be worth it if you have 2 bathroom sinks and a kitchen all drawing from it though. It takes up a bit more space than the others though- harder to jam under some sinks.
Great info - thanks!
I'd like to put it under the kitchen sink (minimal lag time here would be the most useful) but I'm worried that at some time we would need more than 2 or 4 or 6 gallons of hot water at one go. Is there a way of switching back to the tankless if we needed a lot of hot water? e.g. some sort of valve that could be turned manually?