Update on the birds

It was looking promising for the Bluebirds. I even got a picture of the male, sitting on top of the house Saturday morning.
Saturday afternoon, the Bluebirds and a pair of House Sparrows were squabbling over the house and by Sunday, it appeared that the House Sparrows had won. There was no sign of the Bluebirds all day and the House Sparrows were very busily filling the house with grass. The male also spent a lot of time "dancing" around on the roof.

According to various birding sites, I have two choices:
1. Keep pulling the House Sparrow nests out until they give up and move on, giving the Bluebirds a chance to move back in.
2. Put up a second house within 5 feet for the Bluebirds.

Here's what I'm thinking:
1. I feel really bad destroying all that hard work, it just seems mean. I know that House Sparrows are an invasive species, i.e., non-native, but that still does not make it feel right.
2. In theory, this may work, because House Sparrows are so aggressive and territorial, they won't allow another House Sparrow to nest so closely but will tolerate a more passive bird, like a Bluebird, in their territory. But, this is also the more expensive option since it means buying a new house and new pole. And, does not guarantee that Bluebirds will move in rather than some other species.

I think I'm going to go by my local bird store this weekend and talk to them.

Any suggestions?