The 9-12" overhang doesn't really give you enough benefit for all the work. It's not enough to sit at comfortably for very long, and you are essentially sitting at the sink.

I would probably leave it as is or shorten it slightly and match the top to the new counters.

We have a similar set up, with an overhang. We just reno'd the kitchen and raised the counter from sink level to bar height. The overhang is only 12 inches, but we don't sit their for extended periods of time and mostly use it for buffet style serving. I did not like it at all when it was level with the sink!

I like your option 3. It's more work but would look much more naturally functional and updated and as you point out may even give you more "visual" room. Our overhang is only 12" and it's fine. I wouldn't go less than that if you can help it. We use it with barstools and sit there all the time. Great for company as everyone loves to talk to the cook. Good luck!

Our 12" overhang

@may_flowers - We are considering putting cabinets on the nook side, like you suggested above and having a wider counter. While searching about how much counter we would need behind our sink since there won't be a backsplash, I came across another post of yours with pictures of your kitchen. It looks great. Could you tell me how large your eating area is? Our nook is on the smaller side, and I don't want things too cramped. If we remove the wall, and put in 12" cabinets, we're really only losing about 7-8", so maybe that's doable.

I would remove the wall, or at least cut it down to countertop height. That way you could have a larger work area of the same height countertop.

Our DR is 98" to the end of the peninsula and 111" wide. Our DR table is 36" wide. It's 41" from chairback to slider and 28" from chairback to peninsula. We've never bumped a chair into the peninsula. I am sitting here now with 11" between my chairback and the counter edge.

Remove the wall completely, and have the counter extend past the sink at counter height creating a seating are which can double as a buffet for parties. It will make the area more spacious feeling. To get a more comfortable overhang of about 15" you can install a narrow depth bookshelf on the outside end and a cleat of 2x4 bolted to the studs on the wall side. This will take away the need for expensive supports under the countertop material, and will give it a nice built-in look. make sure to put an electrical outlet under the overhang - I find this very handy. To cover the backs of the cabinets, you can order a finishing panel, or, just use drywall painted in the same color as the walls.

If there is a concern about flooring material under where the wall used to be, you can just move your peninsula back by 4-6" to cover the spot, giving you a few more inches of kitchen.