This is just a common phrase, and the way it's usually said is option 3. The meaning of it isn't about literally smiling, so the world smiling at you doesn't really fit (although option 2 is better English than option 1). The point it's making is that when you're happy, it's infectious and others around you will also tend to feel happy.
New words, one handy idiom, and a 2-minute quiz — delivered to your inbox to keep your streak alive.
The phrase I know is - 'Smile and the world smiles with you. Cry and you cry alone.'