I completely reject the concept of race. I don't think anyone should be offended by any word. When they are offended, it is because they give themselves permission to be. So I don't have any problem with "racial" language.
However - as a rule I try not to offend other people. Not because of any moral conviction. I just believe in being polite.
I chose the third option.
I agree with this. I believe that people created racism. It is not a natural belief, because in reality we are all human. We are all made of the same materials. Once upon a time, somebody thought up the word nigger, and at some point decided that it would be used as a derogatory slang term for black people. If you put it in perspective, you'll realize that if that one thought had not occurred to that one person in that one moment in time, our culture would not be the way it is today.
I believe that every action we take defines us, and shapes who we are as people - and I believe that words in and of themselves are meaningless. It is the context in which they are delivered, along with intent that make them what they are. I've had a man tell me he loved me with malice behind his eyes and anger in his voice. It was most obvious that what he was feeling for me at that very moment was not love. It was something else entirely.
I also feel that the black culture as a whole is flawed in the way that "they" tend to carry a chip on their shoulder, so to speak. I find that many seek restitution, and act as if they have a right to be treated differently because of events in our world's past. Many other races were enslaved in the past. Many still are enslaved, not according to race. Not according to much, necessarily. But I don't think that means everyone should have to tip toe around the issue. That's ridiculous. Nigger is a word, and it is nothing without intent. But even I have to admit, I've never used the word nigger and not had a thought at the very least in the back of my mind about black people. The fact of the matter is that I never enslaved a black person, so therefore I do not owe them anything more than the common respect I would give to anyone until they give me a reason not to.
I grew up in a household where nigger was a commonly used word. My father used it a lot, but claimed not to be racist. He always said there was a difference between black people and niggers. I suppose he is correct, people are different. But why is it acceptable to differentiate between white people and crackers, and not okay to differentiate between black people and niggers?
I have to admit, I don't like the connotation of the word now, itself - but I do use the word. I do not use it to malign black people. I don't even have a valid reason for using it, other than it being habit that I picked up from a very young age. For example, when I drive - I have moderate road rage. Sometimes I scream "GET THE FUCK OUT OF MY WAY YOU FUCKING NIGGER" when I can plainly see that it is not a black person. Now that I see it in print, I see that I have inadvertently demeaned a person for no other reason that I know that word is generally intended to be derogatory in its meaning, and the fact that the individual it was pointed at obviously sucks at driving, according to me.
I'm going to stop typing now, because I'm losing my train of thought and I feel that I am straying from a topic that I am seriously attempting to address. Especially since most of my attempts at serious replies here are ignored in lieu of pictures of my breasts.

EDIT: No, I would not call a black person a nigger directly to his or her face. Regardless of how I feel, the word tends to be offensive to people of that race. I believe other things are for more effective in the quest to demean someone's intelligence, looks, or personality if that is what the intent is, instead of using a word that has been bastardized over a few decades.