Interesting question, but it seems like it was more of a trick question than anything... The questions says "management wants to change the loginname so that it can accept longer loginnames up to 60 characters and that is the only change requested."
Given that Option 1 is the only option, Option 2 violates what management requested by making the field NULLable as well. So I chose the correct answer not actually thinking about the performance difference, as I didn't see that it was relevant.
Though I did learn a little more about the NULL bitmap, so that is a good thing. :-)