if it's in a desert-like environment, i'd go with 2.
as for being castley/palacey, option 1 is probably better but consider finding a place for some colors
Completely agreed.
I'd recommend building it in a desert environment merely for the sake of originality, however, if that isn't what you're looking for, you are probably going to want to roll with option 1. As soulless as gray comes across as, it is better suited for pretty much every other environment.
And either way, as Eksi stated: splash some color in there. Bring life to it.