Before I learned about WordPress network solution I went with option two – setting up certain privileges to users to be able to view and edit content only authored by (and for) them. That can be accomplished by using almost any WP plugin that allows you to change permissions per user, and a few functions that will change how and when things like attachments, post/page count, media library appear. It’s manageable, but also a bit of a hassle.
Having recently done a similar thing with WP network, I have to say it’s an easier and cleaner solution that already handles most of the issues you would come across using single WP installation. Note: Network doesn’t require separate databases from you, merely tables under the same database.
That means that you can query content from other sites (blogs) to avoid its repetition.
All in all, I’d say that for this purpose:
WordPress Multisite Network > Single WP installation