I think there should be an OoC Arena that allows players to try and best each other in PvP. Along with that though, PvP should be possible IC and you should be able to kill off another person's character if they have the permission to do so. So yah, probably 2+3, as long as in 2 you CAN kill if parties agree.
I agree with what CJ said. Killing the other player character(Whether OOC or IC) can be done with permission though.
I think PvP would be completely fine. Killing a character should only be done with permission of course, but other than that I don't see a problem with it.
I agree with the sentiments thus far. PvP should always be possible in an out-of-character arena which, perhaps, could have an in-character location within the RP. - If it was a physical location in Hyrule, it should be warpable to from every major city - Characters would not need to recognize each other, and could come up with any motivations their players could dream up to do battle - Death is impermanent - Both sides would be equal in participants (unless desired otherwise) - Normally, there should be sufficient surroundings to make both hack'n'slash or range'n'stealth both feasible means of achieving victory. Something which would have to be standard is a limit in lateral arena size (100 foot diameter seems about right). Regardless of this arena, however, it should be perfectly feasible for players to kill each others' characters outside of this arena if both sides agree to it. This is particularly true if doing so is for character advancement (or, alternatively, because they never want to use the character again).