Declare variables at top of function or in separate scopes?

Variables should be declared as locally as possible.

Declaring variables "at the top of the function" is always a disastrously bad practice. Even in C89/90 language, where variables can only be declared at the beginning of the block, it is better to declare them as locally as possible, i.e. at the beginning of smallest local block that covers the desired lifetime of the variable. Sometimes it might even make sense to introduce a "redundant" local block with the only purpose of "localizing" the variable declaration.

In C++ and C99, where it is possible to declare variable anywhere in the code, the answer is pretty straightforward: again, declare each variable as locally as possible, and as close as possible to the point where you use it the very first time. The primary rationale for that is that in most cases this will allow you to supply a meaningful initializer to the variable at the point of declaration (instead of declaring it without initializer or with a dummy initializer).

As for the memory usage, in general a typical implementation will immediately (as you enter the function) allocate the maximum space required for all variables that exist at the same time. However, your declaration habits might affect the exact size of that space. For example, in this code

void foo() {  int a, b, c;  if (...) {  }  if (...) {  }}

all three variables exist at the same time and generally the space for all three has to be allocated. But in this code

void foo() {  int a;  if (...) {    int b;  }  if (...) {    int c;  }}

only two variables exist at any given moment, meaning that space for only two variables will be allocated by a typical implementation (b and c will share the same space). This is another reason to declare variables as locally as possible.

Whether something's allocated on the stack in case 1 is implementation defined. Implementations aren't even required to have a stack.

It's usually no slower to do so since the operation tends to be a simple subtraction (for a downward growing stack) of one value from the stack pointer for the entire local variable area.

The thing that's important here is that the scope should be as local as possible. In other words, declare your variables as late as possible and only keep them around as long as needed.

Note that declaring here is at a different abstraction level to allocating space for them. The actual space may be allocated at the start of the function (implementation level) but you can only use those variables while they're scoped (C level).

Locality of information is important, just like its cousin, encapsulation.

I like Method 3:

LRESULT wpMainWindowPaint(HWND hwnd){    HDC hdc;    PAINTSTRUCT ps;    RECT rc;    GetClientRect(hwnd, &rc);               hdc = BeginPaint(hwnd, &ps);    // drawing here    EndPaint(hwnd, &ps);    return 0;}LRESULT CALLBACK wpMainWindow(HWND hwnd, UINT msg, WPARAM wparam, LPARAM lparam){    switch (msg)    {        case WM_PAINT:      return wpMainWindowPaint(hwnd);        default:            return DefWindowProc(hwnd, msg, wparam, lparam);    }}

If it deserves its own scope for organization purposes, it deserves its own function. If you're worried about function call overhead, make it inline.