Running an SSIS package owned by a domain user from SQL Server running on a local service account
My personal opinion is that option #1 is the way to go. But I see no need for you to have to grant the domain account local administrator access. It seems to me that it requires access to certain folders and files and so you could grant the domain user access to only the resources that it needs to run the package successfully. This can be done through the file/folder properties dialog box and select the security tab - there should be no need to set it for every file and folder as you could set the permissions of the parent directory and set them to override child properties.

I hope this helps you.