My answer was not well represented in the poll, so I went with #1.
My true answer, however is:
A) I trust them 100%
B) I restrict characters heavily, not because I think they can't handle it, but because I usually have a narrative VISION that I want their help in achieving. Within that VISION, I trust them 100% to achieve it beyond my wildest expectations.
C) Where there is no restriction required by the narrative, I don't use restrictions. I don't even bother with poncy ideas of game balance, like points, stat rolls, levels, ECLs, etc.
My story hour is different - the narrative VISION is to take what the system gives us and make it into something special, a kind of random confluence. But most of my campaigns have minimal system restrictions and heavy narrative restrictions.