I’ve been preaching #2 for years, but Wendy says it better than I’ve ever been able to. I can’t tell you how often I read poor dialogue between characters, or dialogue that just doesn’t get to the point (do I REALLY have to read the “Hi, how are you today?” “I’m fine, and yourself?” formalities between two characters EVERY time they come across one another??? Sorry. I’m sore on this.), etc.
Worth a read. Check out Wendy Storer’s tips for writing dialogue via Lorrie Porter’s blog.