St Peters Basillica and Vatican...Do I have enough time?

Is there a shortcut that will take us from st Peters into the Vatican.

No. There is only one going the OTHER way, from Sistine to St Peter's, for tour groups.

Is 2 hours enough time to allow us to get in Vatican and see sistine
chapel and be gone?

Yes, if all you want to see is the Sistine but keep an eye on the clock. The chapel is at the far end of the museums, takes some time to walk to, and you'll be among other tourists doing the same thing.

It's climbing St Peter's dome that could be problematic as it doesn't open until 8:00. You'd be cutting it close to do that + be in line at the museums a little before 9:00. It's a 15-20 minute walk from the church to the museum entrance.

Can you get to the train station super early and stash your luggage then? I believe the left luggage area opens at 6 am. Then it would be there when you're done with the museum, etc. See http://www.romatermini.com/en/service/detail/left-luggage

Here's info about storing luggage, bags, etc. at the Vatican - http://www.museivaticani.va/content/museivaticani/en/visita-i-musei/consigli-utili.html

You may have very little time in the Vatican. Depending on the security line, it's possible you won't start your actual visit until 9:15-9:30. Then you need time to get back to Termini station. You may want to consider skipping the walk up to the top of the basilica to save time. There's an intermediate level outside where you can get a nice view of St. Peter's Square.

Ok so which of these options sound better stow luggage at train station then arrive at st Peters at 7am to walk around and get pictures and be ready right at 8am to walk up to top of dome. I heard this walk you just need around 30 min to get up there and look around? Then go straight to Vatican for 9:00 entry to go to sistine chapel. What happens if we are there a little late like at 9:15? Then get taxi back to train station.

Option 2. Be at Vatican right at 9 am go straight to sistine chapel and try to go through the cut through to st Peters to save time to climb up the dome. Then take taxi to train station?

I think you have enough time.
How far away is your hotel from the Vatican? If it's not far, leave your luggage there. Sometimes there is a bit of a wait to retrieve luggage at the train station, depending on how busy it is that day.
I would do St. Peter's first right at opening and consider skipping the climb to the dome.
The "shortcut" from the Vatican Museum to St. Peter's is supposed to be used only by tour groups.
Individuals do use it with success, but not always. It depends on the guards that day.

My 2 cents. The walk up the inside of the Dome is a claustrophobic nightmare. My kids and I did it when they were 11 and 13, and arriving at the small enclosed platform at the top was not really the highlight of my Roman Holiday. Their mother stayed on the roof of the Basilica and had a much nicer time. RS says it takes an hour up and down but about halfway up my kids lost interest and wanted to go back down. My recollection is that this is impossible and that you have to keep going to the top and then down a different way. I could be wrong on this. The inside of the stairwell was hot and slanty. The view was meh because it was a hazy day and the vistas were blurred. Can you tell that I am not a fan?

The interior of the Basilica of St. Peter is breathtaking, a memory you will treasure forever, including your getting to view the Pieta by Michelangelo. The Sistine Chapel can move you to tears. The Museum does take a lot of walking before you get to the Sistine Chapel and there are a lot of statues and paintings. Not forgettable, but kind of like being overdosed on chocolate.

I did not time myself when I did the Dome climb, but an hour sounds closer to what it takes than 30 minutes.

The passage way is narrow (many areas it is for all practical purposes impossible to pass anyone ahead of you) and the passages are 'one way' traffic.

Doing the dome climb and getting to the museum entry by 9, likely means treating it like a track meet. Taking photos or video of the view in a quick run around the cupola and looking at them on your train ride to see what the view was about.
IF you are on the 1st elevator load it might just be possible, but you need to be fit and able to walk at a BRISK pace to get to the museum entry from St Peters.

With the time frame you have its going to be more 'been there, done that' than a experience to savor and enjoy.

Our 1st trip to Rome we did the Sistine and the dome climb on the 2nd trip. No regrets with our choice.

What happens if we are there a little late like at 9:15?

I wouldn't risk it, personally. The museums are busy enough that they don't need to be generous with late arrivals, not that it couldn't happen.

FWIW, the Vatican staff KNOW that RS has remarked about tours being able to use the backdoor from the Sistine Chapel and that sometimes even if you aren't a member of the tour, you might be able to sneak in with a tour group for the purpose of using the short cut. I tried it, and was being denied access to the "secret" exit by staff before I called to my wife (who had made it past the gatekeeper with my kids), "Honey, I'm trying to catch up with you! Tell the guide to come back and tell this guy I am with the tour!" Not saying that you can't get through the secret exit, but I think that they are on to the whole, "I'm trying to catch up" ruse. You might get lucky, though--saves about a mile worth of shoe leather (and 30 minutes) if you can do it.