I'd go with #1.
For me personally, 16" is a huge reach to the controls.
It's not that I can't do it.
I just don't playing hunched over, and reaching for the controls.
That isn't fun to me.
As far as which hand should use the spinner, that one is kind of a toss-up.
Every spinner game that I can think of at the moment used the spinner either centered, or on the left--except one.
Unfortunately, that one was Tempest.
I prefer left, but am left-handed, and played alot more Tron, Omega Race, Discs of Tron, and Blasteroids in the arcades, than I did Tempest.