I like a combination of the first and the second option. Also remember you don't have to have everything fully fleshed out because you can do more of that as you grow and learn your character and the lore more intimately. The nifty thing here is that you can keep those things you think of as holes in your back story as secrets your guy holds close to his chest.
Desert city - Ul'dah
Ocean city - Limsa Lominsa
Woodsy city - Gridania
I'm still figuring all kinds of stuff out myself and have added some back story tidbits as I've learned. The first, and most important thing, in my opinion, is to work out your guys personality, view of the world, beliefs, actions, quirks, strengths, and weaknesses that are lore independent. The rest will come in time.
Desert city - Ul'dah
Ocean city - Limsa Lominsa
Woodsy city - Gridania
I'm still figuring all kinds of stuff out myself and have added some back story tidbits as I've learned. The first, and most important thing, in my opinion, is to work out your guys personality, view of the world, beliefs, actions, quirks, strengths, and weaknesses that are lore independent. The rest will come in time.