Adding extra creatures to the castle.

I'm not a fan of weird mods where a goblin turns into a catapult after an upgrade.

Therefore, it should turn a goblin into a goblin catapult!
🤓

Number two, there's a slight confusion with the upgrade price.

Honestly, I don't understand why something like an upgrade is needed at all. That is, in principle, not only in relation to the third upgrades. It would be much more interesting from a gameplay perspective to have a "zoo" where you need to carefully approach the choice of upgrade, as it is set in stone. At worst, you could upgrade in a fort on a hill.

Or is a combined scheme the best option?

^This one.
I think everyone liked the asymmetry of Heroes 2 at some point, when different creature lines behaved differently in terms of upgrades. Some don't upgrade, some upgrade once, some twice... Add an alternative for individual lines, and it would be even better.

An alternative, in my opinion, would look good for creatures that perform different roles on the battlefield but require similar resources for their initial creation. For example, conditional mounted knights and foot paladins could be alternative creatures for each other if we introduce a lore that they are prepared from the noble class. We have few nobles => we need to choose the type of combat unit, which one will be more useful.
But, of course, not so many of these connections can be invented, perhaps.