To be honest I always assumed the 'warp flash' as a cinematic twist over something that would be visible to characters... Which would match your second hypothesis...
Mind you if you want to detact a cloacked ship you should set sensors to detect the wake and displacement from the deflector shields, which should effectively show a nice big hole in galactic noise and debris where the cloaked ship is, after all if they turn the deflectors off they could end up crippled by a microscopic fragment of debris...
Been trying to work out the defensive counter for that one for a couple of years now.
DanG/Darth Gurden
The Voice of Reason and Sith Lord
“Putting the FUNK! back into Dysfunctional!”
Coming soon. The USS Ganymede NCC-80107
"Ad astrae per scientia" (To the stars through knowledge)