Option #3: Do something really creative. It sounds like you're doing a pretty small run so this might be an option... some of the coolest packaging I've seen was done by hand by the band members. One of my favorites is a plain brown bag, the CD inside being an almost exact fit, folded over and hand stamped/stenciled/silk screened with the band name and artwork. Things like that take time, but those who buy it really appreciate it. Or you could do something simple like a plain paper case, methods for folding can be found here.

A couple of my friends both run labels with small run releases. I don't know if you are interested in getting the whole disc and packaging handled for you, but if so i can get details on who they use. It can be incredibly cheap for discs with art and inserts. I know they use the folks at http://www.hotironpress.com (also friends) who do amazing hand screened, die cut, and pressure printed stuff when they want something custom. Check out their portfolio for some ideas.