Wow, this is amazing. I love to see talented devs getting things done like this! And apparently two great artists on one project? You guys rock!
As to the question at hand:
I like #2, but I think it would be better if you used different kinds of blocks out there (more like the background), to make it looks like it was kind of breaking away and getting darker in layers (if that makes sense), so that it still feels like the frame of blocks directly around the level is the highest point. I'm not crazy about the block by block gradient, I prefer clean material borders.
Let me know if that doesn't make any sense and you and me to do a quick edit to show you what I mean.