I would go with the first option.
I've just come across the first instance where I needed to use a dropdown menu, and I chose to do it like this. My decision was based partly on the number of times I've watched an elderly friend with arthritis struggle with dropdown menus; providing an alternative way to reach those links seemed simple and worthwhile. (I have difficulty with some dropdowns myself, so from a purely personal point of view, too, I would prefer this set-up.)
And I think "links" which go nowhere simply confuse folk. (They confuse me, anyway. :))