Dear Sir or Madam ...

The one word 'regret' suggests you should prepare yourself for bad news. It is very unlikely that the civil servant who wrote the letter has any emotional involvement in your case, but this form of language is still used as a 'shielding formality'.

Answer 4 suggests that the letter, plus any enclosed / attached documents, should formally guarantee that you have been granted whatever it was that you had applied for.

Answer 3 is correct with regard to formal / official letters, between people who know one another's name but have probably never met. The element of 'sincerity' conveys slightly greater warmth than ‘Yours faithfully’ which, while meaning broadly well, is effectively a bland greeting between strangers. Meanwhile Answers 1 and (the virtually imaginary) 2 almost suggest that the writer of the letter does not quite expect you to believe what they have said.

Answer 2 is correct, with the name of the addressee (person being written to) at the top, and going downward by stages to the wider elements of the address, except the postcode at the bottom.
Note the format and punctuation of British postcodes.

The formal 'third-person' invitation requires a matching Answer, i.e. as in no.2.
Answer 1 is too informal and does not confirm who is sending the reply (i.e. 'you'!) ; similarly with No.3; No.4 is well-intentioned and clear, but not the standard way of doing things (though they would very probably forgive you, as a 'foreigner / non-native', for not quite knowing!).

Despite the sinister circumstances and the feel of the phrase, there is no specific suggestion (as in the false Answer 3) that the man is guilty ~ though it may turn out that he is: along the lines of the infamous Ian Huntley, caretaker at the Soham school where two young girls were murdered in 2002.
You may wish to contact your old friends in the area to let them know you are thinking of them ...

Answer 1 may seem rather formal but it is sincere enough and expressed in measured language. Answer 2 is far too informal (unless you knew/know Grace pretty closely); Answer 3 is heavily overstated and probably not very helpful ~ how would you like to be reminded of the obvious in such a heavy-handed, cliche-ridden way? Answer 4 is probably too brisk and casual for the circumstances, and once again the cliche offers little real comfort.

Answer 4 offers the most appropriate such 'barebones' letter, though the Real Thing would presumably include further circumstantial details in a second paragraph.
Answer 1 is worthy but pompous and longwinded with its long, convoluted unpunctuated sentence that is somewhat overstated and cliche-ridden. Meanwhile the middle two Answers are far too colloquial and rough-and-ready if you are hoping for a constructive, collaborative response from one of the senior people at the firm that made this defective unit.

Answer 1 is rude and dismissive, and a sad way to put an end to what should have been a helpful and constructive association with the company; Answer 2 may happen to be true, but why need you be so blunt about it? Answer 4 is pompous and exaggerated, but Answer 3 manages to steer a reasonable middle course between these various temptations. It is also correctly signed-off, and the use of a (slightly 'arch') rhetorical question does at least raise the feint suggestion of dialogue ~ or at least, open ongoing communication ~ between you and the company, with no hard feelings invoked either way.

Answer 1 covers most of the details given in the description, in a way which is reasonably accurate and positive; the alliterative F's on the two adjectives are a slight cliche but help to add a touch of style to the description.
Answer 2 is perhaps just a little too upbeat; it also begs the question as to whether or not he meets these standards of his own (which apparently he doesn't, as sometimes, we were told, he can be unpunctual and/or lose his temper).
Answer 3 is too personal and lacking in the kind of detail that would be helpful to the organisation; Answer 4 is similarly unspecific and altogether too 'chummy' in tone.