I don't think number two is entirely that good of an option.
You'd be asking anyone who wishes to be on this album to create a song in its entirety to be judged as per which song goes on the album. That's asking a lot of work from so many people, who will put in all their efforts, and still not get into the final CD to be sold in the store.
I think it was about 2 years ago that it last happened, but there was a 3 party distributor that came along, looking for original songs to be placed on an album for sale from a website other than Newgrounds. They actually did this a few years in a row.
What they asked was for each artist who wanted a chance to be on the track to submit a demo of the song they wished submit to the album. The Demo was between 1:00 and 1:30, and was supposed to be partly mastered, so you had an idea about the quality of the finished version.
I believe 10 or 12 artists/songs were selected, and after they announced the composers who were going to be on the album, they then had about a month to finish the track, and the entire album was then mastered by one person, so each track had a relative feel to it, even though it had 12 or so different artists.
The reason this worked so well, was because plenty of time was given for the people actually chosen to finish their songs, and the people who weren't chosen didn't have the letdown of putting forth all their effort to make a finished song that didn't end up getting chosen.
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Side-note here.
I would absolutely love to see/take part on a "Newgrounds Unplugged" album where the DAWs and VSTs are put down, and those artists willing pick up guitars, pianos, or anything acoustic, and re-record, or even cover other newgrounder's songs, or their own. I think this would be a very tasty, fresh thing to present to fans of the NGAP, and to really press the musical talents of many producers here. Think about it!