I'd vote for 3rd solution with time paused in battles.
But what would you say about another one I had in mind:
The time wouldn't pass on it's own but it'll take it's own turns after fights, events, progressing in quests e.t.c. After some amount of time-turns it's late evening and day-time NPC go to sleep, night-time NPC come out to play. And we will have something like 2 time-turns to interact with night state of world, before our characters will simply tell that they are exhausted and refuse to do anything but going to sleep. After sleeping we are as always at early morning state. If we would ever get wholly night quest (or our vampire will loose his tadpole) we should be able to skip a day to switch to night life and vice versa.
In multiplayer considering how we can split party and do talking or fighting in 2 different places it could be made into 1 time-turn for 2 simultaneous interactions.
I'm expecting that to both add the cycle without making players feel urged by short digital day and force players to go to camp for those story bits in more controllable way, and even allow Larian to skip some work on NPC schedules.
