Perhaps we're asking the wrong question here.

There are two options, and how they are presented either results in problems with clutter, or with clarity, but both options are for the same action of editing the page/section. So why present the options until the user clicks on the link for editing at all?

Now at that point it could go with a dropdown presenting the choices, but let's look at how this sort of thing, with two or more edit modes, is usually done across existing platforms: Click the link/button, and generally it opens up to the visual editor by default. From there, the source mode is a tab or option that can then be switched between as needed, with the visual editor also doubling as a preview if the user is working mostly in source.

Wordpress is a good example. Their visual editor itself makes me want to cry, but the interface is clearly navigable and such. It's basically what I expected with this when I first heard of it as well.