Definitely the first option. You should be able to drink without standing in the lake though. Just being on shore is close enough to grab a drink, while not also subjecting yourself to the rad effects of being in the water.
Nice idea. I have Dirty Water in my lists of things created for Food and Drink, but still to be used. There are quite a few other Food and Drink items that have a similar magnitude of effect so I chose to leave Dirty Water out so far in favour of other items. Option 1 is what I currently have as its effect.
I like the idea of being in contact with a water supply to gain it, rather than only be an Item to pick-up/equip. Could be good to add water fountains (or toilets) in a game. You might want to limit it to once per activation (and maybe any further uses require an action), so models are limited.