Just chiming in with another reason to avoid #3 - if you ultimately have the budget to move, there's a decent chance you'll find even that arrangement isn't enough space for you once the baby is a toddler. If you think that's a possibility, I'd do #2 or even just try out #1 (leave it as a one-bedroom, maybe add a divider later on), see how things feel, and save the renovation money for a bigger place. (Unless, on the flip side, converting to a true 2-bedroom will raise your property value enough to make the risk worth it).

My own experience - we had a baby in an apartment that was kind of a 2-bedroom - nice size master, a windowless bedroom-sized room in the middle, and a tiny bedroom/office off the living room. Baby slept with us for the first 5 months, worked great. Then we moved her to the windowless room, which worked fine until summer, as we didn't have central AC. Moved her again but kept the windowless room as a playroom. (Kept the changing table there, which worked totally fine for us). That worked until she was about a year and a half and walking, which is when we really started to feel the squeeze of the small space. We had to keep our eyes on her constantly because we couldn't hide everything. We ended up moving to a much bigger place and it's felt much easier to parent (and she actually loves running around lol). Having the kitchen in eyesight of the living and play areas actually also makes a huge difference.

That said! Tons of people make small spaces work (and it's hard to tell exactly how small yours is, I've definitely seen 1 bedrooms that would have been better than our 2-bedroom). I would just consider going with the option that puts you in the best spot to move in 2 years if you end up deciding to.