We do a version of the second one, where we clone the live server to an "archive" then reset the courses on the live server ready for the new session. All courses on the archive servers (we now have two) are available through a custom course list block which has a tab for each year.
On the whole it has worked fairly well, the main problem being that there isn't a clear cutoff date where the whole university changes from one session to another, so the archive server is heavily used for a few months after the notional session change. We encourage people to use their own customised homepage, but of course blocks such as "latest news" only display data from the current server and this has been the cause of some confusion for people who are actively using the archive server.
We actually made the decision to do this a few years ago when we were using Moodle 1.9, the main reason being that we didn't feel we could manage the server backups if we kept everything on a single server, as each year's copy of the content would take up the same amount of space again. However, if we'd been using Moodle 2 we may have come to a different decision as multiple copies of the same file don't take up any more disk space than a single copy. I suppose the database could become pretty huge, but if we'd started off with Moodle 2 we may well have gone with a single server.