The quoting system is fairly impressive, I must say. The fact that it was retroactive was slick, too. However, it seems to break somewhat frequently, rendering comments illegible. It also has the shortcoming of not being able to reply inline or to quote multiple comments and reply to each in one comment.
I'm not sure why anyone would vote for #2, but there it is anyway.
#3 could be easily accomplished by adding CSS for blockquotes. The biggest downside would be it not being retroactive: old quotes would look like they always used to.
Disclaimer: Yes, I'm pushing my own agenda with this poll. I proposed styled blockquotes in the VS4 brainstorm thread.