The first, and the one that seems to make the most sense, is that Atlantis IS South America. As for the sinking, the point of contention is that it
only involved the capital city of Atlantis itself. Using Homer's measurements, in the Greek stades, and other references Homer makes, such as size,
shape of the plain (specifically, the Alta Plano in South America), etc. really seems to bear out. TDC had an excellent special on it a while back,
and there are some good books out as well.
The other theory (as previously mentioned) that seems pretty good, involves the island of Thera. The geography fits the description of the city of
Atlantis, as well as the timeline. They also seemed to have an independent culture and animals not native to the isle (from surviving frescoes), that
seem to coincide with Homer's descriptions, but the measurements and location don't match up as good as the South American explaination (at least as
it refers to the various kingdoms, etc. that made up Atlantis).
For my money, I'd go with the South American explaination, as it seems to jive with every facet of the story, from either the Egyptian, or Homer's
telling.