From: MN, USA
My approach most closely follows #3 but I take one more step towards paranoia and don't use spaces in the directory names.
This has been my approach since Windows 95, before then games sometimes wouldn't work anywhere except their hard-coded default path.
One other nugget of gold is that I install and run all of my games as a user in the Administrators group and I turn off UAC.
The most common problem installing to Program Files and Program Files (x86) is the inability in recent Windows versions to write to those directories. So if you game is installed there and wants to make a saved game file or some other change, the save may fail, the game may crash, etc. Hence the C:\Games\... approach.
Final nugget is that with Windows 7 Pro you are granted a license to use Windows XP Mode which is a Windows XP license running in MS Virtual PC. Google "Windows XP Mode" for more information. That can be used for particularly stubborn wargames that don't want to run on Windows 7 or won't run on a 64-bit operating system.
my 2 cents
Harpoon (HC, HCE, HUCE, Classic) programmer HarpGamer.com