I voted for Correct English, but there is a middle ground, as others have mentioned. Maybe I should have gone for your second option, English but no caps, but that really didn't fit what I mean.
I personally use proper capitalization/punctuation most of the time on IRC, but I also use acronyms common to FoLCdom -- LOL, ROTFL, re, OMG, brb, afk, etc. Not to mention the acronyms we all use for episode titles.
That said, I agree completely that chatting quickly on IRC is a different thing than making posts to the listserv or message boards, and different rules apply. I have been known to edit my posts several times on the boards, in order to make sure I'm saying just what I intended to. But if someone corrects my spelling on IRC, I'm going to be annoyed -- it's kind of an unspoken rule on the channel that the occasional typo is to be expected in chat. The only time I might retype on IRC is if I think my meaning was unclear -- leaving out a "not" before a verb, for example. But otherwise, I figure if people can figure it out, there's no reason to restate it.
As for full "chatspeak", as an adult, I find it childish and very annoying, though luckily it's not something we've had to deal with very much in FoLCdom. As something fun between teenaged friends, it probably does little harm, but I think the danger is when it becomes a habit. Like swearing, it might be something that doesn't raise eyebrows amongst your peers, but if you slip and use it in a professional situation (that college internship, your first job interview), you are going to find yourself very embarrassed. I did recruiting for several years, and trust me, people *do* talk about you when you screw up like this.
Kathy (who could tell some amazing stories about new employees' faux pas)
