You raise some interesting questions, which in the spirit of creating dialogue I will create more questions from. I think in order to determine your definition of success. To some that maybe writing and recording all the parts to an album. I am working with a client currently that is playing all the parts of his record - surely we could find better session players for instruments that he isn't as proficient with, but his end goal is to have played each and every part. That is how he as determined his success. To others, success might be having a song chart, or play as background for a TV show or film. All of these outcomes will require different approaches.
If you define success as releasing music you have done, I would success path #1. Just be prolific and improve as you go. Don't sit on a project because you have determined 'it could be better'. Get it as good as you can at that time and release it, then move on to the next project and continue to improve your craft as you release new material. I would continue to practice as well, to become proficient with your tools as this will help them become less of a barrier to productivity and creativity.
IF you are looking to have songs chart, or be licensed you are looking for a polished end product. I would say path #2 will get you there much faster. There are established musicians, many are Academy members, that offer remote recording services to provide professional instrument records for productions. You can cherry pick from around the world the best musicians within your budget. However, you will need a decent demo of the song, so Path #1 works its way back in here.
I think overall it's a matter of knowing when to move on to something new and stop dwelling on a project trying to make it 'perfect'. I suffer from this at times, but have been trying to force myself to set deadlines for releases, especially of my own productions, so I don't have the time to be overly critical. I also rely heavily on hired guns to fill the gaps where I cannot reasonably play a part. It's still my idea and song regardless of who plays it.