I voted first option, although I don't like them that much. I think bards are one of "situational" classes -- they work fabulously in a story-driven, intrigue- and/or diplomacy-heavy campaign. In a "default" D&D campaign, they make for a good fifth member.
But, in the end, it all depends on the group, group play-stile, and (naturally) on the player himself (or herself, as the case might be).