The advantage of option #1 is that there's usually an amplifier built-in which provides a decent amount of power output. Most #2 solutions would require an additional device to achieve a similar state.
I'll challenge that.
As a counterexample, the FTDX101D is an SDR that provides 200W of output power without an external amplifier.
The QRPver-1 v.3 is a superheterodyne transceiver with only 3 W of output power.
Whether a transmitter modulates a signal in software or with analog electronics, the problem of subsequently amplifying that signal to 100 W or more is the same problem. Consequently, being an SDR or not has no fundamental bearing on the attainable output power.
The bigger determinant in output power is cost. RF power transistors aren't cheap, so you won't find more than a few watts coming from a $30 radio.
Another key difference is flexibility. Indeed, a digital system with a single SDR at its core could hop between multiple bands (and so antennas) with the help of a switching mechanism, whereas a "normal radio" can only TX/RX over bands it's been made and has antennas for.
I'll challenge this too.
The Softrock Lite II is an SDR and can not change bands -- in fact it can't tune at all. This is because it utilizes a simple crystal oscillator, and has only a single filter.
Meanwhile, the FT-897D is not an SDR, yet covers all HF bands plus 6m, 2m, and 70cm bands. It can do this because it has a variable local oscillator, and it has a bank of filters. You can hear the relays switching when changing bands.
An SDR would need precisely the same hardware to achieve similar coverage. And in either case, a multi-band antenna, or a way to switch between antennas is still required.
It seems like the attributes you ascribe to SDRs are not really a property of SDRs generally, but perhaps just the SDRs you have seen. What distinguishes an SDR is the use of software and digital processing to perform modulation and demodulation. But these other attributes, like transmit power and band coverage, are not part of the (de)modulator. They are part of the other bits of the radio, which will be the same whether that radio is an SDR or not.
To answer your question, an SDR transceiver is entirely practical. In fact if you were to go out today and buy a "nice" commercial radio, there's a pretty good chance it's an SDR. It comes down to economics: the price of digital electronics has decreased so much that an SDR architecture usually yields better performance per dollar.