I would only disagree with (1). I think a lot of the confusion comes from the fact that coding DNA is much easier to understand. Coding DNA essentially has one function, to code for proteins. Only the local sequence matters when considering coding sequences.

Non-coding DNA is much more difficult to understand in terms of function. It can act to regulate gene expression both through the local sequence (promoters, enhancers) and through long distance effects. For example, very distant promoters can be brought together within the nucleus and hence interact with each. These interactions are a result of both the local sequence and the sequence of the very distant interacting region. The interactions are also dependent on the concentrations of proteins/transcription factors that also interact with these sequences. We have no good way of modelling that kind of complexity.

In defense of #1, I've read that retrotransposons can be irrelevant to the function of the cell. they survive random mutations through making more copies of themselves, so mutations will select for retrotransposons that A) increase their number of copies and B) don't harm the fitness of the host. they don't need to actually benefit the host to survive selection pressure. if they do, that's gravy.

I suppose they could also survive selection pressure by hurting the organism if they're not expressed. for instance, by capturing a vital protein-coding gene from the host, and arranging things so the transposon must stay active for the gene to be transcribed.

Yes, you are right. The genome is a battle field between human reproduction and viral sequence integration and reproduction in our “shared” genomes. We think of it as a human genome but it is hodgepodge of what we call “our” genome and half a million viral-derived sequence that also wants to replicate every once and a while.

Eukaryotic genome are the worst noodle code you have ever seen—but miraculously they help to make humans and other creatures, bugs, and plants with some consistency. That is a miracle to even the most hardened atheist!