Since there is a precedent from SA:DX going on, my vote is for option 2. I think we should the following ruling as a precautionary measure.
-Time Division: You must play through all characters used in a given stage. For example, in Kingdom Valley, you'll have to use Sonic, then go through Silver's segment, then go through Sonic's mach speed segment. There is a precedent for this ruling in the Sonic Adventure 2 competition rules since both the precedent and the proposed rule deal with a somewhat similar glitch in which you can potentially clear a stage without playing as all the characters.
-Speaking of rulings, since the submissions are back up, now's the perfect time to contact Rolken about the gem ruling debate. Once again, I'll post the argument summary for quick access.
-Arguments for restricting gems: Deciding on which gems should be allowed should be done on a case by case basis. If it weren't for Sonic's custom gauge not working properly (i.e. does not decrease when a gem power is used) all of the gems would be fine for use in competition. The purple gem should not be allowed because the busted gauge allows for infinite jumps, something you would expect to see from a game shark code (moon jump codes as they are called). This gem would have its worst effects in Kingdom Valley, Flame Core, and Aquatic Base. The Yellow Gem should not be allowed in boss fights since the busted gauge allows the player to always have a blue shield like ability on. This would cause Sonic to be effectively immortal during boss battles (like a game shark invincibity code), removing any skill in boss battle ring competitions. The blue gem is fine since that takes skill to avoid something bad happening to you while using it.
-Arguments against restricting gems: Gems were intended with competition in mind. (Point agreed upon by both sides.) Could result in interesting competition if used correctly. Only Sonic can use them.