It's a really tricky situation, I think. Every discussed possible appearance of the LE has its pros and cons and makes sense in its own way.
When the "Music" node is selected the LE is available for further filtering. It's not available when one of the other nodes is selected (Bookmarks, Podcasts, Audiobooks etc.). To make it consistent in this regard the LE should also be available when selecting one of these nodes.
So that would tend to (3).
On the other hand, when I see the LE independent from whatever is selected in the panel above, I'd expect it to display the results from ALL nodes and not only from the Music node. And, like Zak mentioned, "It would also require that selecting a Library Explorer node deselects any previously selected playlist or computer node to make it clear filtering isn't cumulative."
That tends to (2).
As I understand the Library Explorer more as a "Tag Explorer" I'd still tend to (2).
I don't know which capabilities might be hidden inside the LE, waiting to be set free - from the developers point of view. To make it a navigational element which got its own unique feature-set that you can't achieve using the nodes-panel or the track browser...