OK, I had some of the same issues as you do before I installed my Yukon. Oil heat, 650-700 gallons of oil usage per winter previously, 1 chimney, 1 flue, no extra room cause of 2 oil tanks in the basement, furnace pretty much had to go into the furnace room due to layout of walls, no place to put a second chimney, how my duct work layout is, etc. etc. etc. That's why I went with a Yukon with oil backup (cause it uses 1 flue), well, that and the fact that that I could find nice used Yukons for reasonable $$$.
After living with it through 1 winter now, I found I used only about 5 gallons of oil for the whole winter, so I'm thinking you
definitely wouldn't need
3 tanks anymore, 1 would be more than enough! And FYI, I wouldn't worry about having the oil storage in the basement with a wood furnace, the are TONS of homes that have this combo. When is the last time you heard of a house burning down cause the oil tank leaked and the wood furnace blew up?! Heating oil/fumes have a high ignition point, not explosive like gasoline, as far as that goes, why is it any different having a wood furnace in the basement with the oil storage there, vs oil furnace? Fire in both, both using air out of the basement for combustion...
Now I like my current setup, but looking back, here is what I would do if I could do it over,
and this may apply to you. I would get
rid of my oil furnace/tanks (that would open up a lot of storage room in my "oil tank room" (which used to be the coal storage area years ago) I'd sell the old furnace, the oil and the tanks on CL, around here those tanks seem to bring $100 bucks or so, and it is pretty easy to sell "used" heating oil at $3 per gallon or maybe a bit more, and the old furnace for maybe a couple hundred? That would give you a extra $1-1.5K to work with.
Now then, find a nice used (or new scratch and dent special) high efficiency propane furnace on CL (there are tons!) Put that in for your "main" heat to keep the insurance man happy, you won't need a chimney for it, just 2" PVC pipe out through the basement wall, then get a 100 gallon or so tank to run it (heck, if it is truly just your "backup heat" maybe you could get away with a 20 gallon BBQ tank!) If you were planning to put up a new chimney, I figure that for about $1k or so of your install cost, so now, you need no new chimney, that would free up another $1k to work with, or $$$ to put a liner in your old chimney if need be.
Now you could spend a lil more to buy a quality wood furnace, (something with secondary combustion)(I like the new Drolet Tundra, and the Kuumas are
really nice, but that may be a budget buster for you) and it can be installed to your existing chimney and tied into your existing duct work or whatever works the best! Easy peasey, problems solved!
Just a note, you should be able to heat your place on 5 cords per year, I did mine last winter, and based on past oil usage, we have similar heating loads.
Hope this makes some kind of sense, I kind of typed it out quick like, I know I can ramble and bounce around sometimes, hey, it made sense in my head!
I'll answer any questions you have if you don't understand, feel free to critique...