McFadden's mirrors approaches 1 and 2 from the list above. The log likelihood of the intercept model is treated as a total sum of squares, and the log likelihood of the full model is treated as the sum of squared errors (like in approach 1).
The ratio of the likelihoods suggests the level of improvement over the intercept model offered by the full model (like in approach 2).
A likelihood falls between 0 and 1, so the log of a likelihood is less than or equal to zero. If a model has a very low likelihood, then the log of the likelihood will have a larger magnitude than the log of a more likely model. Thus, a small ratio of log likelihoods indicates that the full model is a far better fit than the intercept model.
If comparing two models on the same data, McFadden's would be higher for the model with the greater likelihood.