Well, the Millennium Eye was and is still an important artifact in Yugioh lore, just like the rest of the Millennium Items. In any Yugioh RP, they would likely be a major part of the plot, so having them around as a mere fashion statement doesn't really make much sense or add to a character in the end. Now, seeing as we already have Shadow Realm powers running around, I could help to come up with an idea of how we could implement them into the RP's story, if you'd like at least. On that note, I would also gladly fill in as another Co-GM to help out with this kind of stuff, as well as examining CSes, Decks, post quality, etc.
As for the deck issues, I think Option 1 is a given. In pretty much every Yugioh RP I've been in (or started myself elsewhere, for that matter), using meta decks (and by extension, decks built with no other goal in mind than a surefire OTK) wasn't allowed simply because of the power creep and annoyances they create. Sure, they can be great and fun to use irl, but no one really likes being on the other end of it unless they're also packing meta or a deck made to counter it specifically. Even if you want to disagree with this point, the statement before it still stands, and as UE has already mentioned, deck/power balance for an RP like this is very important.
I wouldn't suggest allowing banned card because then everyone is going to want to use them, and uh... Konami banned those cards for a reason in the first place. I can think of a few ways to bring up the power scale of a few of the old school decks, such as Blue-Eyes considering I have an up to date, legal Blue-Eyes deck that uses the current mechanics of Synchro and XYZ and is absolutely crazy when/if it goes off. We'll need to remake a few decks obviously, within the limits of the banlist, but of course remake them to be a more efficient and powerful version of themselves. Like I said, I know I can do that much for Blue-Eyes, but others I'll have to take a better look at.
I think it's clear Option 3 is... pretty unlikely. Nobody likes a staged duel to win simply because a rigged victory isn't satisfying, and nobody for sure likes a rigged loss because they know they had things to counter whatever the other guy was throwing.