I use italics, I find it is the clearest way to define thought as different to speech, and denoting actual thought as a form of dialogue can help draw distinctions between actual thought and narrative.
In third person narrative it is common to write from the perspective of the character in question, and colour the tone of your writing with the way they think. As an example I'd refer you to the First Law trilogy by Joe Abercrombie. Each chapter is devoted to the perspective of a particular character, and each is written in third person limited perspective (so you're effectively inside the character's head.)
The inquisitor is prone to self-analysis, so even though the narrative is effectively coloured with his way of thinking he also thinks as dialogue — in italics — as a way of differentiating those thoughts. Conversely the barbarian Nine Fingers basically never thinks, his narrative is more straight forward and inner dialogue is rarely — if ever — used.
Most of the authors I read do the same so it's certainly a strong convention, but as PraveshParekh says, all are viable options. So while there is no “correct” way, if you are going to use inner dialogue then I believe that sticking to italics — and convention — helps avoid confusion.