Last thought, I'm gonna put in my perennial plug for Fire on the Velvet Horizon as a good sourcebook, and if you go with option 1, this might be a case where you can actually pull stuff out of it at full strength instead of having to water it down so it doesn't take over the campaign.

In particular, you could scrap the whole Alice in Wonderland aesthetic and have them transported to something akin to a Brainstormer's palace from "Velvet Horizon" with an instance of the now-gibbering BBEG as one of the other inhabitants in addition to all sorts of other exciting stuff. That might let you make it a coherent enough experience to make it a memorable and appropriate capstone to the campaign. If they managed to overcome the not-really-sane-enough-to-properly-wish-themselves-to-victory antagonist, the whole edifice could then start coming apart at the edges of its reality and come crashing literally down to earth on some continent within the same world but that they've never been to before, leaving the adventurers with a limited amount of time to try to grab some exotic stuff from the wreckage before it all disintegrates or goes elsewhere, not suited for the sane light of day. (Also letting you start up some new stuff for a next campaign hook before they're able to make their way home.)

Glad if it is helpful