So the thread kinda degenerated into lit-geeks in loincloths vs. lit-geeks with elf-ears. Ok.
Ignoring LotR and Conan as the obvious "examples" of there genre (Cue 10 pages of "no they're not!") I do think its safe to say option 1 is classical high-fantasy inspired, the other is neo-classic sword-n-sorcery inspired.
Lets take the ideas and spin them a bit more.
Option 1 could be also viewed as chivalric. Noble knights, pious priests, good-hearted outlaws, fair maidens, evil dragons, wise kings, and ugly crone-witches. It could be viewed as a world like Mystara's Karameikos, the quintessential "good kingdom". Quests here are Grail quests; done to better the world against the forces of darkness who forever loom just out of reach in the dark places in the world.
Option 2 could be viewed as dark-age nihlism. Cruel tyrants, backstabbing thief guilds, assassins, gamblers, drunkards, shady merchants, prostitutes, and corrupt police all rule the places of "civilization" and people tollerate it because being out there with the bloodthirsty monsters is much worse. Magic, even that of divine nature, is feared and coverted at the same time. This is more AD&D/City of Greyhawk material, a world jaded by its own failings and unable to quite cope with the fact Man's time is nearly over here. Quests here are often done for personal gain in treasure and power, and if that makes the world a better place, that's a fringe benefit.
Camelot vs. Dying Earth. Middle Earth vs. Cimmeria, Oerth vs. Faerun. Hope vs. Cynicism.
Which world do you want to make your mark in?