How does the Helmet of Fate work?

I have heard two basic theories on how the Helmet of Fate operates:

1) Once Kent Nelson (or one of the other versions of Dr. Fate) puts on the helmet, he is granted the ability to wield magic along with the skills of Nabu. Thus, each version of Dr. Fate is a different individual(s) with the same abilities imparted by the Helmet.

2) Once Kent Nelson puts on the helmet, his soul is removed from his body and immediately replaced with the actual spirit of Nabu. Thus, each version of Dr. Fate is the same entity (Nabu) in different host bodies.

It seems that both methods have been used recently for the hero. Is there canon evidence (or at least consensus) of which option is actually occurring for the different versions of Dr. Fate?