As the other answers have pointed out, the limit is $1$. I'll attempt to address your two situations.
Situation $1$ seems to suggest that you think that it matters what $f(a)$ is when we're looking for the limit of $f(x)$ at $x=a$. This is untrue, since a limit is the behaviour of a function around the point, not at the point. Case in point, if we had two functions $f_1(x)$ and $f_2(x)$, which are equal everywhere (black curve) except at $0$, where $f_1(x)$ has the blue point and $f_2(x)$ has the red point. This makes no difference to the limit at $0$, which we see from the graph must be the green point. So it's essentially irrelevant what $\sin\left(\frac1x\right)$ is at $0$ when we're finding the limit.

Furthermore, $\sin\left(\frac1x\right)$ is equal to $0$ at infinitely many places in the neighborhood around $x=0$, but this does not make the limit undefined. This is because these points (multiples of $\pi$) are not included in the domain of $\frac1{\sin\left(\frac1x\right)}$ due to the fact of them being undefined. Hence, $\frac{\sin(1/x)}{\sin(1/x)}$ is indeed equal to $1$ at every point at which it's defined. If instead, the undefined points were replaced by $1$'s, you'd be correct in your intuition that the limit would be undefined.
So then situation $2$ basically tells you the answer. Since the limit is the behaviour of the function around the point (wherever it is well defined) and the function is equal to $1$ everywhere around the point, then the limit must be $1$.