Dave, believe me, the guy will get another partner, and you'll soon get the call from management. You'll sound much better alone. Sounds like the guy is an OK person, so these things are harder than if he were a real jerk. Bad players will only hurt your rp.
An Itallian restaurant here in town took my recommendation and hired an acquaintence of mine. I sub for him often. They offer me the job every time I'm there. This guy plays sax to tracks...UGH! He's not good, but he's a great guy. I will not take the job, because I will not leave my current one, even though
the money is the same and this job is inside, with a great house system and stage.
Ethically, this, for me is like dating your friend's ex wife. It's ethical (I didn't go looking for the job), but would still hurt the guy's feelings. I've known him for 35 years. We played in a Motown band together in the early 70's.
But that's not your situation. You deserve the job without the hassle of putting up with a sub-par "partner". Option #2 will probably work out GREAT!
Best of luck on this one..it "ain't easy"!
Russ