Failure modes for suspension forks, air and coil
Basically the air and oil seals get worn and leaky. You'll get less air spring pressure, droop and increasingly poor damping. 

Of your options, 2 and 3 are not realistic. If the air spring pressure drops to zero (relative to ambient atmospheric pressure), there is no force to extend the fork. With no air spring pressure the stanchions will not slide freely on the legs because the oil based damping system is still working.