It seem that OPTIONS in "fossil sqlite3 ?DATABASE? ?OPTIONS?" commands are not properly evaluated. Below is evidence of attempts to set separator to 'X' value. 

I am in open checkout, so I can select stuff from fossil repo by built-in sqlite3 command(with or without explicitly naming fossil repo file):
<verbatim>
c:\soft\msys\home\user\fossil>fossil  sqlite3
SQLite version 3.7.4
Enter ".help" for instructions
Enter SQL statements terminated with a ";"
sqlite> select * from blob where rid = 1;
1|1|127|a28c83647dfa805f05f3204a7e146eb1f0d90505|
sqlite> .qui

c:\soft\msys\home\user\fossil>
</verbatim>

If I try to use OPTIONS (both with explicit naming of repo file or without naming of repo file, while invoking build-in sqlite3 in open check out directory), I get either:

error "Error: no such table: blob", so options are not honored, perhaps interpreted as a name of(non existent) repo file:

<verbatim>
c:\soft\msys\home\user\fossil>fossil  sqlite3  --separator 'X'
SQLite version 3.7.4
Enter ".help" for instructions
Enter SQL statements terminated with a ";"
sqlite> select rid,content from blob where rid = 1;
Error: no such table: blob
sqlite> .qui

c:\soft\msys\home\user\fossil>
</verbatim>

OR error about too many options "sqlite3: Error: too many options: "'X'"" with exit to cmd shell:
<verbatim>
c:\soft\msys\home\user\fossil>fossil  sqlite3 c:\soft\bin\myfossilclone.fossil --
separator 'X'
sqlite3: Error: too many options: "'X'"
Use -help for a list of options.

c:\soft\msys\home\user\fossil>
</verbatim>