#2 is actually in the story. Unless you're saying they got the particulars wrong?
"The project managers Page had intended to fire that day were instead brought into Google’s growing operations organization, under the leadership of Urs Hözle."
I think even that part is mostly wrong. The author confuses project and engineering managers, but more importantly, this notion that Larry wanted to fire all of them is just not true. The managers all had technical backgrounds (CS degrees, usually) so the plan was for them to go back to writing code. I also don't remember a bunch of people moving to Urs' team. Maybe one or two? Most stayed with their teams.
"The project managers Page had intended to fire that day were instead brought into Google’s growing operations organization, under the leadership of Urs Hözle."