I wired it up via 1) and automatically knew that wasnt going to work as i was only able to get music out of the dvd unit and when attempting to use just my cd player all i was getting was bass. The only thing that I can think to do would be to wire in a switch and toggle it back and fourth whenever i wanted to use each other. I do know its most likely throwing back in some nasty feedback as you can tell with the clarity and alternator whining.
If money is avail, buy a new head unit that has an input for the dvd player, you will get best sound quality thru that and it will overall be neater. as far as power, seperate everything. try to run new wires to the fuse box/battery for switched/constant. better to do it right the first time. if you cant buy a new deck try to find out if your deck has an aux input adapter and do it that way. it would make switching betwen the two a lot cleaner and easier.
Went ahead and bought JVC's new KD-DV5100 since it has both dvd and cd options and allows their new gigamp3 option enabling over 100 hours of mp3 playback on a dvd. Ended up getting a brand new model with 1 year warranty through a great store for $240 shipped!