0. There are tiny people who are not invisible but there is something that makes it so humans ignore them. That specific mushroom interfered with whatever that is so that we can see them.
An argument for #0 and in favor of #2 is the #2 requires the mushroom to cause an hallucination that includes a lot of generated detail to be realistic and consistent with how an actual tiny person would behave and affect the world.
#0 on the other hand is just turning something off.
An argument for #0 over #1 is that #0 does not require actual invisibility. If there were actually invisible tiny people we still probably would have discovered by now the physical mechanism that can make things invisible, which w e have not. Unless we are going to consider magic or psychic powers or some other such thing completely beyond known physics we can almost certainly rule out actual invisibility.