I would go with either #1 or #2. In most cases it won’t matter to much. What are you trying to do with the picture?
It really just has to do with how the colors in the picture are represented, i.e RGB, YUV, sRGB. Unless you’re really picky about how colors display on screen and print, it won’t make much of a difference.
There is a rule of thumb, sort of. If in doubt, and it’s not causing you any problems, use the original embedded profile. You’re certanly not going to get any better than that by transforming to a different colorspace, even if it were to a better one. You can only make it worse.
Granted, it’s not going to make too much of a difference when working on-screen. AFAIK, if you use the Save for Web feature in Photoshop, it’s converting it to sRGB, then stripping away the color profile. (Though, there are a few things to consider when using PNGs.)
Color profiles make the most difference when going to print. When the RIP knows exactly where the color started, it can better keep the color consistent for where that color ends up.
If you are planning on printing images from Photoshop and you’re willing to take the time to track down and install color profiles for your printer and whatever paper you plan to use, here’s a good guide.
I don’t really print anything ever.. so… that is good advice, thanks guys. I’ll use the embedded profile (I’ve BEEN discarding it… because I didn’t want some “foreign” color profile. I guess that was.. xenophobic.)