First - so sorry for what you have been through! I cannot imagine trying to deal with both the practical needs and emotional needs all at the same time.

I am not a designer. I can say that I have a small island which the kids like eating at, but I like to sit at a table. We do not have an eat in kitchen - just the small island, but the dining room is only a step away. Our dining room is not formally decorated - it is in many ways an extension of my kitchen - country / farmhouse in style. If you decide to go with the island, keep in mind a table seating area somewhere convenient. Not everyone wants to eat all their meals at an island.

I like all the cabinets you would get if you moved the kitchen into the family room, but personally, keeping the kitchen (and it's mess) a little separated from everything else in it's current space would be my preference. Your old kitchen was gorgeous, BTW.

Option 1 makes a lot of sense to me - especially moving the dining room. I would put the frig over by the panty, and get that dishwasher out of the island, and put it next to the sink. Option 1 gives you more countertop space on each side of sink and range.