Simply unrolling the cylinder until it's a flat rectangle like below would be the obvious choice for the simplest way to do it, but to me it just seems to lack impact.
I agree that the first option has a lot of wasted space, but I'd figure it could be filled in with data and little arrows pointing to items of interest. I don't know if option 1 is the best way to go, but to me it just seems to give me the feel of the space colony more than a simple projection like option 2 below does.
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