I feel your pain. I just tried this with one of my own games that was written in Inform 6, compiled to a ulx file, then bundled up with all the resources into a gblorb file. Everything seems to work fine, except that music and sounds don’t play. I think this is a known issue with Parchment.
Firstly, make sure you have the latest Parchment files, as the Inform 7 stuff is really old. See How do I get Parchment working? for a good (albeit incomplete) discussion of this.
Use option 2 in your original message. The zip file that you upload to itch.io must contain an index.html file and all your resources. In other words, the contents of your Release folder as created by Inform 7, but not the Release folder itself. I’d suggest that you delete the index.html file created by Inform 7 and rename play.html to index.html as suggested by @mathbrush. You can modify the index.html file to suit yourself (assuming you know how) and the two css files (again, assuming you know how). However, if you make any changes to these files, make sure you copy them somewhere safe so that they don’t get clobbered the next time you publish your project.