I comment as no expert because my experience with this isn't extensive.
Option #1 won't cut movement east to west, correct. All it would do would keep players moving west to east. And if you are using reserve rosters, no doubt those would be stocked with easterners who then wouldn't play as much as they would if they were in an appropriate league. As commissioner, you could prune the reserves yourself to your liking and/or enable certain players in the PCL to become FAs to go where they may. Having an similar restriction in the other leagues would be helpful to restrict movement, but again that requires your select involvement and defeats the purpose of having an AI do the work for you which we'd all like it to do.
Option #2 might actually be less work, though I haven't tried it myself to know. To integrate, simply modify the foreigner percentage (IIRC that pertains to players created for a specific league) and/or set a foreigner limit for each team. Start out with a few, maybe 1 or 2, then increase as you see fit. Teams will then decide if it is beneficial to them to meet that limit. On the surface that seems a lot less work than monitoring and editing birthplaces. That is, if the foreigner limits work as they should. SandMan has described a league of his where 80% is from Wisconsin and 20% are from the Midwest using a modified nations set he
created.
Regardless of your success, please let us know what you tried and what happened!
I'm trying to run something similar.