If the frame is too wide, I'd say spacers, but then you'd have a problem with the coaster brake bracket.

I see option 1 as modifying the coaster brake bracket, but it would have to be pretty strong to hold at basically two 90-deg angles, one across and one down.

I see option 2 as cold-setting the frame narrower. Maybe find a threaded rod to put across the chainstay slots, put some washers over the dropouts, and thread it down with nuts to about 1/2" narrower than you want, let it sit a bit, and loosen. Maybe it will cold-set that way. It should, in theory.