During engine troubleshooting, what is indicated by a continuous flow of blue-grey smoke from the exhaust pipe of a four-stroke motorcycle?

1. The engine is burning oil, likely due to worn piston rings, a worn cylinder bore, or leaking valve stem seals.
2. The carburetor idle mixture is too rich, wasting fuel and producing soot.
3. The fuel contains water, which is evaporating in the combustion chamber.
4. The exhaust silencer baffle is rusted, allowing raw exhaust packings to burn.