If I may toss out a third option (well, less a third option and more a trip into my own little world of headcanon) I always figured that the gym leaders, even low level ones like Brock and Misty adjusted the degree of strength in their team in accordance to the skill of the trainer. I mean, if a kid was to start pokemon training in, say, Cinnibar, he'd be pretty much screwed if Blaine only ever used the same team. Also, if this is going to be sandbox-y, which from what I understand it kind of will be later on down the road, then there's the chance that some of us will wind up breaking the sequence and challenging the leaders in a different order from eachother. At that point, a gym leader like, say, Erika is going to be of no consequence to the player if they've already crushed Koga or Sabrina's gym. (Actually for that matter, what timeline are we even in? Is Koga the gym leader or is he Elite Four? For that matter, is Sabrina the gym leader or is she off being a movie star? ...oh god if Sabrina's off being a movie star then WHO'S SAFFRON GYM LEADER!? IS THERE EVEN A SAFFRON CITY GYM!? IS IT LAVENDER TOWN GYM NOW!? OH GOD NO... THIS IS ALL JUST ONE GREAT BIG CREEPYPASTA IN DISGUISE, ISN'T IT!? WE'RE ALL GOING TO BE EATEN ALIVE BY ZOMBIES AREN'T WE!? OH GOD... *get-ahold-of-yourself-woman slapped*) I would suggest perhaps changing up the leaders' teams to suit the character challenging them. You know, based upon their current skill and party size. That's not to say that they shouldn't be a challenge, nor that I think applying a level limit for the characters to meet before standing a feasible chance at winning is a bad idea. In fact, I'd encourage aspects of Option 1 anyways so that the weaker characters do have that incentive to - while not necessarily catch up to the stronger players - improve upon their weakness and come out with a more powerful team. Losing can be incredibly character building, after all. Just look at Gary after he got trounced by Mewtwo. If thinking up individual teams is too much work for one person, we could always collaborate together on this board and help eachother think up teams for other characters to fight. It could be fun.