Dolomites Car Rental or Train/Bus

That is up to you. If you stay in Ortisei, it is well served by buses that can take you to various hiking sites in the Val Gardena (Gardena Valley). Obviously a car would give you more flexibility to explore farther locations.
You can also pick up the car in Milan and return it in Bolzano. One way returns in Italy often don't entail extra fees or, at most, they are very small.
Just make sure you pick up and drop off in the same country, otherwise the one way drop off fees are huge.

Yes. It did seem like the option of a car rental in Milan or Bolzan seems feasible.
We have always rented a car for Europe vacations so the train travel is a novelty for us. But from what I read it is very reliable and easy to maneuver.
Thanks for your quick response.

Trains are great especially to move from city to city. But to visit more rural environments, like the Dolomites mountains, or to visit small villages I prefer to have a car (the only exception is the Cinque Terre villages, which are best visited by trains).

If you want to minimize driving, especially in big cities like Milan, you might consider taking the train to Bolzano, or even Verona. Verona has all major rental car offices near the train station (the main station is called VERONA PORTA NUOVA). I think Bolzano has rental car offices only at the airport, so you might need a taxi from the station to there.