I think the correct answer is the last option. The sentence that shows the correct capitalization would be "Natalie is an all-American volleyball player." The first sentence is wrong because "all" is being capitalized which should not be. "All" is not a proper noun so it should not be capitalized. This is also true for the second option. Another error in the second sentence would be not capitalizing the word "American" which is also the error for the third option. As a general rule, all proper nouns in a sentence should be capitalized. In the sentences, Natalie and American are the only proper nouns.
