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Hi Happylad,
I have an AE300 and also have an 80" wide screen. I sit about 150" (about 1.875 X viewing distance).
I would not recommend sitting much closer than this because even though the smoothscreen works really well, you can still see occasional pixelisation, vertical banding, smudging on motion and fast pans (general problems with LCDs, not just the 300).
Personally I find these bothersome sitting any closer than the distance I mentioned above. As far as your options go, well thats a toughie. On the one hand its nice having the bigger screen, however IMO option 2 sitting at 1.68x would be the absolute min. distance I'd recommend - is there no room config. where you could sit slightly further away????
Saying all that, its really a matter of personal taste - you may not find these things as noticable/irritating at the closer viewing distance. What I can guarantee is that an 80" wide picture will look fantastic on this PJ - especially with DVD.
Good luck in choosing.
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