I've been thinking about this some more..
The reason why MMO's get away with having veterans and new players is that they have different areas for different level players. There's the newbie area, the endgame area, and everything in between. In WoE we don't really have that luxury, so things are a bit more complex.
First of all, I think we should have a system where you gain 0 XP and 0 salvage if the player you are attacking is 7+ levels below you. This means that a level 7 character could attack level 1 character and get a bit of XP and cards, but level 8 character would get nothing. That should discourage high level players from ganking newbies. We could also give them some kind of small rep penalty for attacking weaker players. Then again this system would become a problem when defending a City or a Town.
Option 2 sounds better and better to me. If we talk about fairness, it's much better to have a fresh start every now and then. Having those level 24 veterans running around the map, owning everyone (or not being able to attack anyone), would not be that much fun. As a new player, I wouldn't be very motivated to join an event that already has tons of veterans with tons of skills and cards.
I've been trying to copy MMO formula as much as possible but in this particular case, resetting characters could make the event better.