I'm voting Option 2, but I'd like an Option 1.5. Give us Cure and Curaga, Fire and Firaga, and let those who want to set both the single and the AOE, but also let us hit a toggle to turn one into the other on the fly.

Ie, player Bob might want 1: Cure 2: Curaga 3: Fire 4: Firaga and he'll always remember his action bar is set up like this so please remove the toggle.

Player Malcolm might want 1: Cure 2: Fire, and when he hits Z it turns it into 1: Curaga 2: Firaga. He wants to stick with just those two buttons and have a modifier (Z) for when the situation requires him to AoE his spells or pull them back in to a single target.

Bob doesn't want to deal with toggles. Malcolm wants to use his space economically.

Is there any reason they can't both have it their way?