In choosing Project Manager for a medium-sized project, assuming the same amount of salary is desired, which one is likely to be hired?

If its a medium sized project , i would go for Option2.

It depends upon the results of interview .

1) If candidate No.1's  skill in communications was not impressive as shown in the way he answered questions, then he might not be chosen.

2) Even if candidate No.2 lacks experience if he was able to express himself well, was able to answer the questions clearly and sincerely and showed great potential to become a good Project Manager, then he will be chosen more likely.

As in my view, effective communications is the most desired quality and skill of a good Project Manager. 

I would go for option 1 as practical experience counts more when it comes to being able to perform the job.

You are talking of Project Manager - the most important requirement for a project manager is to perform Integration Management. Integration is a key responsibility of a project manager and to do that a project manager does not have to be a technical expert but he has to be a good communicator.

Studies show that post graduate engineers or technically highly experts have not always proved  to be good project managers. Higher academic qualification can, at times be an added advantage but not a basic quality required to become a successful project manager , irrespective of the size of the project.

chose the goodone & dont chose due to salary 

Ask some real world practical questions, the chances are more someone with5Yrs experienec in PM would do better than one with Masters in PM