I can only share my experience. I don't know how much it will help you in your decision because our situations were pretty different.
I had a very bad tear the first time -- I don't know what degree it was, but it took a looong time to heal. I had a very intervention-heavy labor and did have an epidural (two of them, in fact.) After many hours of difficult labor, dd was having some distress, so they used a vacuum extractor to help her out. She was posterior too, and I think all of those factors combined to making her exit rather rough. As bad as it was, for me, the tear was the least of my trauma. (Of course with an epidural, I didn't feel the pain of it initially.) My bigger problem was that I felt really helpless and disempowered by the whole process -- even a little violated. I had difficulty bonding with my dd at first as a result, and I had a lot of regret and even guilt about that.
So for me, my second birth was more about affirming my ability to birth normally, than about not tearing again. I practiced birthing hypnosis, which was helpful. I did manage to have a wonderful, natural childbirth. I had a few minor interventions for reasons that don't matter now, but no pitocin, no drugs, no epidural, and no vacuum -- yay! I felt really great after that birth, and in spite of some lingering regret that my first baby's birth wasn't the wonderful memory that I wish it had been, I have healed significantly from that experience.
I *did* tear again the second time, but not as badly. It didn't bother me greatly, and my recovery was much faster. We did do some of the perineum massage during the 3rd trimester that the pp described, and my mw held warm compresses to my perineum during delivery, so those things may have helped. DS was also born face up, so perhaps some tearing was inevitable. My doctor says that some of the tendency to tear is a factor of your skin's elasticity -- some women just stretch more than others. That's not to say there's *nothing* you can do to try to avoid a tear or make it less severe, just that minor tears need not be seen as abnormal or some sort of failure.
Whatever you decide, I hope your second birth is much less traumatic.
Keep talking with your mw, and if you do opt for the epidural, try to avoid any *other* interventions. It seems to be those cascading interventions that really cause the problems.