Hi @Chong,
Welcome to the Microsoft Q&A platform!
According to your questions and concerns, I have following to share with you.
The option one is traditional way to migrate, and as you mentioned, it is complex and time-consuming and the options 2 is workable based on the steps you offered.
Whether setup a hybrid environment, it depends if you need manage your users from on-premises and have a need for directory synchronization or password synchronization. Therefore, setting up Exchange 2016 is not strictly necessary for mailbox management in EXO if you proceed with Option 2. You could refer to How and when to decommission your on-premises Exchange servers in a hybrid deployment | Microsoft Learn for more information.
But if you have a need for hybrid, it is recommended to have an Exchange 2016 or 2019 instead of Exchange 2003 because 2016 or 2019 have better support and compatibility with Exchange Online.
If the answer is helpful, please click "Accept Answer" and kindly upvote it and if you have anything else need help with me, please feel free to contact me.