dialogue - Dialog, just what's the best way to write it?

I've come across the following conventions:

"What’s this for?" asked Jake.
Sue replied, "None of your business."
He shrugged his shoulders. "Well, it looks darned funny sitting here."
"It’s still none of your business," she asserted. "It’s female stuff, so don’t you mind."
"Oh!" Jake dropped it and backed away.

And

Jake "What’s this for?"

Sue "None of your business."
He shrugged his shoulders.
Jake "Well, it looks darned funny sitting here."
Sue "It’s still none of your business," she asserted. "It’s female stuff, so don’t you mind."
Jake "Oh!"
Jake dropped it and backed away.

There's also the style of placing the speaker above and centered (screenplay?).

First seems to be the canon version of writing dialog. The second might appear in a screenplay (but we'll ignore those) although more predominantly in games, where the speaker almost always gets the label (usually accompanied by a semicolon).

I'm writing something and have very dialog driven plot (in certain chapters) and the usual advice for dealing with situations like this isn't very pleasing to hear. Typically, I find the recommendation is to use speech tags (ie. "said Sue") every 4 or so dialog lines; and if only two characters to avoid them altogether. Ironically, the recommendation also usually say you should avoid paragraphs in dialog, and instead split it on multiple lines.

Let's say, for simplicity sake, I'm writing a detective story. And, there is just one main character and (in accordance with the guidline of "show, don't tell") most of the plot is him conversing with other characters rather then narration. Isn't that going to lead to just a intelligible blob of text?

My question: Is it just better to go with the version that's documented in most manuals of style? (ie. example 1) Or is there a alternative, 3rd solution?

Credits to Victory Crayne for the (initial) dialogue snippets.

Answer

If you're writing a novel, the correct way to go is Example 1. Example two is completely wrong in novels and is only seen in amateur writers. If you send something like that to a publisher they'll most likely laugh at you and automatically reject it.

Modern advice is to use as few dialog tags as possible. Most publishers want you to use action tags instead.

Susan leaned against the door jam. "What are you up to?"
Bill closed his laptop and turned to look at her. "Nothing!"
"Uh huh..." Susan narrowed her eyes. "Wanna try that again?"

Action tags give the reader a better grasp of what's going on.