You should use method 2. (Method 2 doesn't always necessarily involve getting a mean image; sometimes it's sufficient to just use hte first image.)
Method 1 is problematic because usually the EPIs are almost in register. If you apply method 1, you'll break the near-registration between the first volume and the other volumes in that run. Perhaps it doesn't matter, but if the volumes become far enough out of register, the registration algorithm might fail.
The cited problem with method 2 actually doesn't exist, because SPM allows you to specify other images to move along with the source image.
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