2. Create a Secondary Installation in a Different Folder.
definitely the second option.
I never upgrade an existing version. When a new verion arrives or i need a testing environment an complete new installation is created in a different folder.
severeal installations with different purposes can easyly live beneath each other.
At leadt one remains untouched until the new one really works.
Have a look at
fpcupdeluxe and the possibility to use defmods.ini in the new created folder, so you get a tailored Lazarus installation automatically.