
My bad, thanks.
Ok, so here is my wall of text.
I voted for 2. The reason is a simple series of lack of written laws, failures of the system and the lack of checks balances for the staff.
First of all I like to say the report system is fine, a lot of people say it is bad but in fact I have no issues with it except for the occasional backlog but that is not usually in staff's control. The problem overall is:
Lack of clearly defined rules
Every forum a have been to has a centralized structure to it. Basically their are general rules that are clearly stated (e.g. causing racial hatred can give you an infraction no matter what section of the forum you post it in) and apply to the entire site regardless; basically it is a constitution that guarantees: natural inalienable rights. This one does not, which means every section (the R&D group, General/reports group, and site disc. group) make their own rules and give you no guaranteed rights at all (e.g. your topics and posts can be deleted without notice if someone on staff doesn't like them regardless of morality).
Suggested Fix:
Implement a centralized system (e.g constitutional republic) with clearly defined ranks, rules, and publicly available for all to see and include unalienable natural rights for regular members.
Not sure what purpose you think ranks would serve outside the currently defined ones, however we are rewriting all the rules stickies to be clear and concise (problem is as situations arise rules get revised/policies added they tend to get a bit cluttered) obviously this would make them publicly available. Once the stickies are clear I'm going to be requiring the moderation staff to cite which rule was violated when they give an infraction. As far as unalienable rights, this is not a democracy Time and stop trying to make it one. You have the right to be told what rule you broke, and the right to question infractions in answer hall. That's it. "Freedom of Speech" is not a given right here because we have to regulate things such as instructions on hacking, cheating tips, flaming, etc. There's just too many abuses to ever define that right for people.
Staff (Members) not held fully responsible for actions
The biggest problem with this site is when people get into is staff is the abuse they cause; kevinpowers anyone? But besides that, as a regular member I don't see much of the corruption, apart from the amount of deleted threads and posts and the rare unfair infraction. There needs to be a balance a.k.a. no looking the other way in answer hall. Don't get me wrong the answer hall does serve a purpose but it is not used to fullest.
Suggested Fix:
1)Put an infraction system in for staff so they can held accountable. Modify answer hall to be to accept complains, and if they are accepted (look suspect or there is a probable cause) start topic in a public thread where it acts like a legal court. The person with the complaint can bring the issue to light and where the accused can defend himself while an admin or higher staff member keeps watch on the situation and who makes the final decision on the issue.
OR
2)Allow the lower members (non-staff) to have an elected member on a staff that: has no admin/mod powers, no in-game powers and only job is to bring to light the abuse to the greater staff by reporting it directly to the top. whenever you have a problem you would contact this person and he would fight for you on staff. The member would be chosen by election every 4 months, and could hold no more than 3 terms in a row (or 1 year).
-You guys don't see it but when I get credible complaints (i.e. when your complaint actually says they violated some kind of policy and is not just a wall of insulting statements about them) there are punishments that come down on the staffmember if their actions are unjustified. You will find NO business who publicly humiliates their employees for the satisfaction of angry customers even if they were in the wrong and I have no intention to start, because that is exactly what I'd be doing if I published every single punishment I gave and abuse I discovered.
-Answer Hall is hidden from all but the Super Moderators and Admins, and if one of them is the problem you're free to pm me directly if you believe they'd try to cover up your thread. I've been saying this for months and few people listen. Answer Hall is there for any issues you have with staff members that you wish administration to resolve. There is no "change" that needs to be made to it... people just need to use it.
-I infract staff with the same infractions I can give you. None of you can see infractions so you wouldn't realize it though. As an example, I give infractions whenever I reverse one 
-Finally, an election would be an incredibly terrible way to add a neutral observer to staff. The only result would be a flood of smurfs voting up someone's desired candidate and any attempt to limit smurf activity would result in people claiming we were discriminating against a group of users.
No community involvement
No community comes from the cycle of: staff doing the reports and not wanting to play mafia after. I understand it is hard work but your getting yourself distanced from the community. We need to play games with you guys. FM is good but more organized events with League of Legends, Voice-Only Mafia, etc.
Suggested Fix:
Create a community manager position that does more than just FMs.
Do you even play mafia? Moderators are ingame all the time despite how we get treated when we reveal our status. Hell I still play at least once a day despite Landstander trying to make his clan harass me for him. We have a de facto community manager atm, he just needs to do more stuff :P
Only way to join staff is through keepers... separate reports section staff from forum moderation
Basically the only way to get on staff is through being a keeper. No one that I can remember started as a forum moderator.
Suggested Fix:
Split the Forum keeper position and forum moderator completely. If you want to be a keeper, you have to be selected by staff and if you do well you be kept, else you'll be cut, if you survive long enough If you want to be a forum mod, you get no in-game mod powers and (least it should be) voted in by your peers by 2 steps. First Staff picks a list of candidates and then from that list they announce a vote between the candidates. This allows staff to control the people they want in but allows the general public to vote on who they want in as well. Think of it as this staff gives a chance to general users and if they shoot themselves in the foot and pick a bad person they screwed up not you. If they pick a good candidate that wants the position and works hard it may very well decrease corruption for the staff.
See above reasons for not wanting an election. Also: Slaol, Eagleman, Bruno, and Deantwo all started as forum mods, I believe borkbot did as well though he was before my time. Keeper rank is kind of our trial by fire to make sure new people are dedicated enough to fulfill their duties, but we do select dedicated community members on occasion for forum moderator positions. They're also free to request a transfer to solely forum moderator once they've proven themselves as a keeper.
Make it so keepers have to work as a keeper for at least a year (or a certain amount like 3 moths, etc) before you get in-game mod powers
Obvious, prevents in-game abuse that you guys seem to have a bad image right now. Also allows you guys to weed out problems and/or inactivity before giving full powers in-game.
Currently we have a 1 month absolute minimum waiting period before we consider giving someone ingame mod. The issue is no amount of waiting determines if a person is "good" or not, as 90% of the issues only appear after they're given powers. Take Skywarden as an example, he was a perfectly fine keeper until he got ingame mod. Then he apparently dropped off the face of the forums and began abusing constantly ingame. This is a case where we need people to file reports when they see abuse because we got a grand total of 0 reports about him despite how rampant it was. A one year waiting period would make no one ever have ingame mod. I mean hell I've only been here for two years myself
Skype is where 80%+ of conversation goes on..... Stop with the secrets(Not staff chat, just general chat)
Be more open all these closed/deleted threads to the staff skype. Come on guys be more open use chatbox more and post more it is a forum after all. Implementing the above few fixes should also help with that.
Confused what you're trying to say. Staff chat is 90% just chatter and/or discussion of reports being worked on. The other 10% includes stuff like me explaining exploits we found to DR/mods, organizing games, catching people up on current events, asking people for assistance in certain matters, posting evidence we've collected of offenses. None of that would be served by having staff chat be public. The only real secret secrets are staff disciplinary actions which, once again, no business releases because it's unprofessional as hell to humiliate your employees to the public. You can hate me for that position but I'm not changing it.
The only other skype conversations I have are people inviting me to games, or me being pmed directly by community I've given my contact info to for things such as point restorations. Oh and Admin chat but that's usually just development stuff.
Anyway thanks for reading, if you want me to go into detail or explain more just ask. Feedback would be great too!
EDIT: Edited to explain better from people's feedback: Glip and Mugy7. (as of last edit)