If I were to take approach 1, I'd throw out the holga back completely, and attempt to fabricate a complete new back to fit the front half of the holga. This has the advantage that you can fit it to any holga (each having unique optics), without modification. You also don't trash the camera if it doesn't work out (not a big deal, but hey - I'm a cheapskate).
Personally I'd go with something closer to the second route. However you can pick up an old 6x9 folder for next to nothing (less than on ebay), and you'll get reasonable optics, and full coverage. Mount that on the front of a wooden box, and you're in business. I did something similar in 5x4 earlier in the year, though that was a little more complex, as the wooden box needed to do the focusing, rather than the lens assembly (and I still need to designa and build the shutter). With a lens assembly that has focusing, apperture, and shutter built in, it will be a doddle to build.