Code 3 would require that the 401k plan certify that your spouse is disabled. They aren't doctors and aren't going to do this. Code 2 is correct for a distribution before age 59-1/2.
The distribution is always subject to income tax, but disability is an exception to the 10% penalty for early withdrawal. (Code 3, if used, would exclude the 10% penalty but you would still pay regular income tax.). You should be able to self-certify the disability. After entering the 1099-R, turbotax should give you a list of exceptions to the penalty and ask if he qualifies for any of them.
