I don't think there is any "X11 default"; handling of selections/paste buffers has always been up to the individual applications.

Personally, I would consider 1. the most useful variant, followed by option 3.  OTOH, the 1. behaviour seems rather uncommon (I can't remember to have encountered it in any common application so far), so it's unlikely anyone would expect it...  (Another option I personally like is if the content of the paste buffer is inserted where the editor's text cursor currently is, independently of where exactly you middle-click within the application window, and independently of whether the cursor happens to be in a selection or not.)   In short, I'd say stick with 3. :)