[against_the_grain]

I would go with option #1. Seems you have already decided to go that route. I put some fencing up about 10 years ago and went with option 2.

The downside with option 2 is obviously no easy way to replace or repair rotted wood. So far , mine are holding up. The gravel in the bottom helps to wick water away from the post. Results will vary depending on how well drained the soil is. Timbers treated for placement in or underground should last for years.


As for wet wood. I usually bring it home and let it dry out in the shop some. At least a few days before using it. Let air circulate all around it so it loses moisture evenly.

I also hand pick the pieces myself as there are usually quite a few culls in HD's inventory.

 

[against_the_grain]

Usually there are bad timbers on top as customers sort through the stack. I look for wood that is fairly dry but not too dry. You can tell
how wet or dry the wood is by how light or heavy it is and obviously
sometimes you can feel the moisture. A board that is really a lot lighter than the rest is dry, and I stay away from those also.

Stay away from wood with sap lines running along the length. Look for pieces that are fairly straight obviously and have good grain integrity. Some lumber that is cut by a branch will never dry straight. You can tell by the how straight the grain is. Heavily knotted wood I usually stay away from also.

Watch for splintering and chunks of wood missing.