Hi Jason,
As per the SAP BODS upgrade Guide we have to use first option rather then second one if you are using second option then there is lots of dependency like Complete Backup, System Configuration backup, Substitution Parameter Backup.
And when we try to deploy those ATL in SAP BODS 4.X it will take more time rather then upgrade of existing BODS 3.2 repository using BODS 4.X repository manager.
I suggest please use the old repository backup and then upgrade it using SAP BODS 4.X repository manager.
Upgrade Guide SAP BusinessObjects Data Services 4.1 (14.1.0) 2012-05:
Page number "22"
Links:
http://help.sap.com/businessobject/product_guides/sboDS41/en/sbo41_ds_upgrade_en.pdf
Thanks,
Daya