The option under the Yahoo Widget Engine preferences must only be available upon first installation. When you try to start the Engine app it merely fires up the widgets you have selected. So that option is out.
I followed your second option and added the Yahoo Widget Engine to start (which, in turn, should place the widgets on my desktop). There are only three widgets and I've plenty of RAM and hard disk space, shouldn't be too draining, I suspect.
Now another problem has cropped up.
I have a new C2D Black MacBook and added the same three widgets to that system. All was fine until the other day when I started up the system and the mini-calendar failed to start. The other two widgets worked as they should.
I tried reinstalling the calendar widget but it wouldn't reinstall believing it was already there. I deleted it and reinstalled, restarted the system and the engine but it failed to appear. Ok. I removed the entire Yahoo Widget Engine using AppZapper and decided on a fresh install of everything.
Now I get nothing. I downloaded the engine, installed it, added the widgets but it won't run them at all. Nothing runs.
Arghhhh!!! Any suggestions?
Thanks, John