I reckon options 1 and 2 are the way to go. Why recycle this Mac Mini when with a bit of tender loving care, spare time, and very modest expense it can be upgraded to an excellent performer. I recently did this with a 2012 model installing a Crucial 500GHz SSD and upgraded RAM to 8Gb (if ever required can easily be maxed out to 16GB).
Now running OS Mojave, the 2012 is a really great performer. It can also run Catalina, which I didn't want as I'd loose the use of my current Word and Excel and some other 32bit apps (at least without implementing a workaround).
Bare in mind your mid 2011 Mac Mini is one of the easiest Macs to work on, with iFixit giving it one of their highest notes ever of 8/10 for upgradability, better than the 2014-2018 models. HERE's how to change the HD, and HERE the full iFixit repair guide.
So if it were me I'd definitely go for option 1. Install an SSD, format as APFS and using the dosdude's patcher, upgrade to Mojave (I have my personal reservations about not installing Catalina).
I definitely appreciate your post!
I don't want to install "dosdude patcher" because even though my Mac Mini mid2011 could run Mojave/Catalina I still don't want to run something that's unofficial and not from Apple...
I'm reading the helpful article you posted about replacing the internal 2.5" HDD because I want to carry out same procedure soon!
EDIT:
It's starting to seem like running Linux on my Mac Mini mid2011 is the best option after security updates stop for High Sierra in September 2020...