#2 isn't always disrespectful, nor does it always require change. It's a lot more shaded than you're making it out. It's actually very complicated, and it's certainly possibly for the offended party to be unreasonable.
I've seen arguments online where an Asian-American has been offended and demanded an apology from a British man in the UK because he used the term, "oriental." The Asian American found it offensive and demanded that they stop using the term, while the British person said that was the term they use there and it's not offensive. Japanese, Korean, and Taiwanese people living in Europe chimed in saying the term was common and not offensive. Nope. The American would hear none of it and demanded an apology.
For a contrived example, let's say Little People of America comes to WotC and says, "Hey, the terms 'dwarf', 'halfling', 'hobbit', and 'gnome' are all offensive terms for people of smaller size. We find your use of these terms very offensive, and your categorization of these characters as distinct races apart from humans doubly so. We're asking that you stop using these offensive and demeaning terms in your products." Should WotC comply? Is this a reasonable request?
What rights does being offended give you over the free speech of others? What are the requirements for hate speech? What's the difference between being polite, and compromising your artistic integrity? I'm reminded of the CODA from Fahrenheit 451 by Ray Bradbury, where he talks about all the requests he's gotten for changes to his works to make them more inclusive. It's one thing to prefer openness; it's quite another to demand it from others, particularly history. Let us not have our tolerance for who we are not grow to intolerance for those we disagree with or find flaw in.
No, #2 is disrespectful by definition, because it's dismissive. Recall that #1 is "apologize and try to reach an understanding." That second part is very important. In your examples above, that's the part people need to follow.
I suppose I did leave out an option: 3) totally capitulate without question. In a sense, that's being disrespectful to yourself. Did WotC do that? I hope not; I wasn't privy to the conversations they may have had about this behind closed doors. I suspect, in this case, they did the right thing. It's usually more respectful to honor the request of someone about what to call them. Your example about the term "dwarf" is not wholly hypothetical and highlights the importance of reaching an understanding instead of starting from the assumption that you are right and people who complain are automatically wrong.