Use choice 2.
Back up your data and boot from the installation disc.
When you come to the partitioning screen, choose "drive options, advanced" and delete all partitions.
You do NOT have to delete partitions and make new partitions BEFORE you install. Do that DURING the install by using "drive options, advanced".
There is a pretty good chance the Windows disk will have all the drivers you need, but you might go to your motherboard manufacturer's web site (Asus) and download at least the LAN driver so you will be able to establish an Internet connection after you install Windows 7.