You use all of the four ways in interpreting any passage of Scripture.
What the Catholic Church means by the “literal sense” of Scripture and what fundamentalists mean by the term are not the same. When the Church speaks of the literal sense of Scripture, She is referring to getting at the actual meaning the author intended to convey. That is not the same as interpreting every phrase literally.
The distinction some Catholics make is between the literal sense and between interpreting something literalistically. The example I always use is the phrase “It’s raining cats and dogs.” To interpret that phrase literalistically, one would think I meant that cats and dogs were actually falling from the sky in great numbers. But what I actually mean is that it is raining heavily. And that would really be the “literal sense” of what I was saying.
In other words, we take into account things like literary style when looking at the literal sense of Scripture. So we take the creation account in Genesis literally, but that doesn’t mean we think of it in terms of a scientific-historical account whereby the earth was created in six 24 hour days. The author was intending to convey certain religious truths in a literary structure (e.g. that God created the world out of nothing, that human beings were created in His image and likeness, etc.) The literal sense is concerned more with the why of creation than the how of creation.
But there are other parts of Scripture that are historical – such as the Gospels. The literal sense of those books does concern things that actually happened as described (though, of course, there are differences between the ways that 1st century Jews wrote history and the way that 21st century Americans write history).
I would say, though, that Adam and Eve did actually exist. Whether or not their names were “Adam” and “Eve”, I do not know, but somewhere along the line there has to have been a set of first parents that we all descended from.