Referring back to the original post, I would cast my vote for #3, that the staffs were both conduits and symbols. However, I would say that they were more a symbol of their office rather than their power. The main passage I am thinking of is the very powerful moment when Gandalf breaks Saruman's staff and expels him from the order. Saruman is no longer one of them. It is more of a ceremonial move imho, although it may well have also served to limit Saruman's power in some way.
In reference to their being conduits, Gandalf on several occasions appears to use his staff to focus his power and perform some feat such as lighting fuel on Caradhras or breaking the Bridge of Khazad-Dum. Also, I'm not convinced that he actually did use spells on the Balrog after losing his staff. The closest reference I could find to his possibly using magic in the battle is the following rather obscure observation of Gandalf:
Quote:
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Those that looked up from afar thought that the mountain was crowned with storm. Thunder they heard, and lightning, they said, smote upon Celebdil, and leaped back broken into tongues of fire.
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These things could possibly have been seen simply as a result of the Balrog bursting into flame, with some inclement weather thrown in the mix. Glamdring and tenacity may well have been enough!
I like the idea of the staffs as a connection to Valinor. They certainly were symbolic of the mandate given to the Istari to act for and on behalf of the Valar, which Saruman had officially stripped of him by Gandalf the White. But as pointed out, Gandalf's white staff did not come from the Undying Lands.