People can be mistaken about experiences
People can, and often do, form radically mistaken beliefs about their conscious experiences—eg victims of blindness denial claim they can see although they are blind. So the possibility of fading qualia (option 2) shouldn't be rejected.
Argument anticipated by David Chalmers (1996).

References

Chalmers, David. 1996. The Conscious Mind. New York: Oxford University Press.
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Artificial Intelligence »Artificial Intelligence
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Can computers think? [1] »Can computers think? [1]
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No: computers can't be conscious [6] »No: computers can't be conscious [6]
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Implementable in functional system »Implementable in functional system
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The fading qualia thought experiment »The fading qualia thought experiment
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People can be mistaken about experiences
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Rational cognitive systems have correct beliefs »Rational cognitive systems have correct beliefs
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