Sql-server – Why does linked server need delegation where as file access require no delegation settings

My personal opinion is that option #1 is the way to go. But I see no need for you to have to grant the domain account local administrator access. It seems to me that it requires access to certain folders and files and so you could grant the domain user access to only the resources that it needs to run the package successfully. This can be done through the file/folder properties dialog box and select the security tab - there should be no need to set it for every file and folder as you could set the permissions of the parent directory and set them to override child properties.

I hope this helps you.

This is expected. LUA strips administrators membership from your token. From Getting Started with User Account Control on Windows Vista:

To help prevent malware silent installation and computer-wide infection, Microsoft developed the UAC feature for Windows Vista. Unlike previous versions of Windows, when an administrator logs on to a Windows Vista computer, the user’s full administrator access token is split into two access tokens: a full administrator access token and a standard user access token. During the logon process, authorization and access control components that identify an administrator are removed or disabled, resulting in a standard user access token. The standard user access token is then used to launch the desktop, the Explorer.exe process. Because all applications inherit their access control data from the initial launch of the desktop, they all run as a standard user as well. Contrasting with this process, when a standard user logs on, only a standard user access token is created. This standard user access token is then used to launch the desktop.

Since your local desktop token has the administrator membership removed, it cannot log in locally to SQL Server if you expect to log in through builtin\Administrators. On remote access your token preserves the Administrator membership and you gain access.

The solution is to grant SQL Server login rights through an explicit domain group account and add all users that require access to your SQL instance to this domain group. Do not rely on Administrators membership, is a bad practice.