In casual discussion, I haven't found anyone particularly concerned
with SGML compatability. Maybe even some preference to avoid the claim.
(I don't have a strong opinion, just the sense that we may not need to
be tied to that boat.)
The problem you are raising is the classic soft-newline/hard-newline one
in moderm word processors. Since you need two characters, how do you
choose them reasonably.
Frankly, I prefer your second option, which says that a double newline
is a hard newline. I very much do not like the first option, since I
believe that it will look at least as ugly as the current approach,
and the presence of seriously long lines scares me (since I'm not so
sure that senders will think to encode in qtext.
Dave