> <a href="http://.co.nz/rss/"; ><acronym title="Real Simple
> Syndication">RSS</acronym> News Feed</a>

I'd go for something similar to your option 2:

<a href="http://.co.nz/rss/";>
    <abbr title="Rich Site Summary">RSS</abbr> News Feed
</a>

The advantage of using the abbr element instead of just the <a> is that
users can hover over the "RSS" and receive additional information.

Why an <abbr> instead of an <acronym>?

It comes down to personal opinion but RSS is actually an initialism not an
acroynm.

Initialisms
An abbreviation pronounced as the names of the individual letters formed
only from the initial letter of constituent words.

Acronyms
An acronym is defined as a WORD formed from the initial letters of a
multi-word name. 

Initialisms - like CSS or RSS - should be marked up as abbreviations - abbr.

HTH
Russ




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