In general as I am not familiar with the Sieg mills, but I'd go with your Option 3.
X and Y travels first, as they are the primary dimensions, but you may as well fit the 3-axis version all at the same time..
The ems-I kit may be like the Machine-DRO one I'm fitting to my VMC mill, and it works independently of the feed method by measuring the table and knee travels. To think the Sieg way I had to read your post carefully a few times and see how it compares to my machine!
Put the Z reader on the head, not quill. Leave the quill read-out in place though: it's there and you may as well keep the option.
Then in use, lock the quill at the top surface, null the Z reading, then use the head travel for depth.
It does depend on the sort of things you are making, but very often the X and Y co-ordinates are the critical ones, the depth or height being less so, within reason.
Still fitting my milling-machine's DRO, once I had the long and cross travels sorted, I am not finding it a disadvantage still using the manual scale for depths, ironically for making the Z-axis bracketry, because there are only a few to measure.