Arround here it is legal to tow backwards but like you said can't rely on the collum lock. You have to lock the steering wheel by other means. I would remove the driveshaft even in a standard car just to releave weare and stress on the tranny
Correct answer is #1.
 
Towing backwards is dangerous and illegal. The column lock is not 
meant to absorb the abuse of road surface bumps and holes...and 
when it breaks lose, the wheels will instantly turn left or right, and 
you'll be smashing into a guardrail before you even know something's 
gone wrong. Whoever told you that should never be asked another 
car question.
 
NOT dropping the driveshaft on an automatic car will fry the tranny 
if you tow over 10 miles or so or at any highway speed for more 
than a few minutes. If the engine isn't running, the trans fluid isn't 
pumping, and the spinning internal parts will cook.
 
A manual tranny doesn't have this issue, so the driveshaft can stay 
in....but ALWAYS tow facing forward.
 
Another thing about tow dollys that people get wrong, often. If the
dolly is equipped with a pivoting table, meaning the car's tires rest 
on plates on a frame that pivots slightly in relation to the dolly's axle,
then you LOCK the steering column of the car being towed. If the
dolly has no pivoting deck/table, then you want the column unlocked
to allow some flex as you make tighter turns as found on local roads 
and intersections.
 
And stop after the first mile to re-tighten the straps. Then do it again
every 30 minutes or when road type changes (highway to local, vice 
versa, etc.)...whichever comes first. I arrived once with both straps 
dragging behind the car, and the safety chains stretched taught...and 
the car half-way off the dolly! SCARY.
 
John
I am thinking about tolling my Gremlin on a dolly later this summer. Will be 150 one way 300 mile round trip. I have been told three things. One guy told me I would have to drop the driveshaft, another told me to toll it backwards and the third told me to put it in N and forget it. What do you guy think?
Terry