1.) A ultrasonic distance sensor; my concerns are that tehse are not usually waterproof.
Ultrasonic rays will ping through water till it transfer back from the bottom of tank. So it can not provide you the level of water.
2.) A pressure transducer; these tend to be very pricy.
Yes it will be very pricy.
3.) Some kind of level switch which provides digital input (Is water level here: yes/no?)
This option will be best and more reliable. You can use some water level indicator probes or magnetic float switch.
When electrode is in contact with water it will pass current through it and give indication to system or controller.
Magnetic Float Switch
Magnetic float switch having magnet under water proof enclosure. When water level reach upto Float switch then circuit will be close and will give level signal to system.
In above to switches magnetic float switch will be best option. Because if water having High TDS then there will be erosion of electrode or element of TDS will gether around electrode and result in conductivity loss of rode.
And this is not possible in case of Magnetic Float switch as it is under water proof enclosure. It is also cheap solution.