Number 2 is right from the manual, so it's the "correct" answer.
PHP (officially "PHP: Hypertext Preprocessor") is a server-side HTML-embedded scripting language.
Now, I "think" the PHP in PHP: Hypertext Preprocessor stands for Personal Home Pages, I remember reading somewhere that was the original name.
So, in conclusion, PHP stands for:
PHP: Hypertext Preprocessor
(Personal Home Pages): Hypertext Preprocessor.
I think number 3 is a whole lot easier to explain, though....my $0.02.
---John Holmes.