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Actually I think, option 3 isnt described correctly. The Dropbox App DOES allow you to download files. You can mark them as "favourite" which means you get a local copy. And I would definitively prefer this option: You would see the directory tree of your DropBox but you can choose for each file if you want to have it locally or not.

In this way you would
- sync directly with the DropBox
- could edit while offline
- wouldn't have to replicate the directory structure of your DropBox
- use as little space as you wish

I'd like that :)

Just did a few tests with the DropBox App - switching of WiFi does not take the directory structure away from the DropBox app. You still can view all things I viewed before while online. When trying to view something not viewed before, it complaints that there's not internet connection. But I am even able to view PDF files offline which I did not mark as favourite; the app has a cache for a few documents, I guess.