The type I use is more of the second scenario you described.
1. I basically take a couple inches of wire, and bend it in half to form a pretty tight loop.
2. Then I take a needle-nose pliers and bend the tip of the loop.
3. Next, I insert the "tag ends" of the wire through the bottom of the hook eye.
4. Finally, I bend the tag ends down to the top of the hook shank, and tie them in.
I've inserted a simple sketch below. I'll try to add a real photo as soon as my digital camera battery is charged
I've been using very thin guitar string. I haven't fished it yet, so I can't attest to its affectiveness yet. I just discovered this style of guard this winter and am itching for spring to test it out. I have no clue how much guitar string even costs. I just got it from a friend, who got it from someone else. I can't think of any other wire that would be comparable in stiffness for such a small diameter, though.