Option 4: Require user to reset password by entering their account name AND email address. As long as you aren't disclosing real names or email addresses on the site (WHY would you in this day and age?) this is a reasonably secure and tamper-proof method. Send a link to a reset page, not the password itself.
Option 5: Use OpenID and pass the responsibility to a 3rd-party to worry about it.
Honestly though this is a lot more effort than most sites require. I for one LIKE receiving plaintext passwords by email because I store them in a "registrations" folder in my inbox. That way I can lookup passwords for sites when I forget them (which happens a lot!). If somebody is reading my email I have bigger problems to worry about than people using my twitter account (if I had one). Of course banks and corporations have stronger requirements but you didn't specify what your site is. That's the key to the best answer.
