Which itinerary sounds better ??

I would always, and I do mean always, opt for the longer trip. But you say you've already booked your flights and you have a different number of nights shown for Options 1 and 2, so I'm confused.

ViaMichelin.com gives the driving time for Sevilla-Grazalema-Ronda-Granada as 5-1/2 hours without any stops, and people say those times tend to be optimistic. You'd need to add a bit more time to include Zahara. And you'll need time out for lunch at some point, and those estimates do not include time spent looking for parking. It takes some time to see Ronda, though the others--which I have not visited--may be very small. I think you'd feel rushed trying to make all three stops in one day. If you're going to spend the night in Ronda, you'll have the freedom to take your time.

Sorry just updated. Meant to put 4 nights for option 2.

We are not museum people. We love seeing new towns and exploring...

Given that Madrid's museums are its major draw card, if you chose Option #2 (with an extra night), then you could plan a day out to Segovia perhaps.

If you are up for the driving then Option #1 would be the more attractive choice for me.

Given your personal preferences:

Fly to Madrid, train to Cordoba (2N), pick up car
Drive through the hill towns (2N)
Drive to Sevilla (2N), drop rental car
Train to Toledo (1N) (via Madrid)
Madrid (1N)

Cordoba is a quieter town, a low-key place to get over jetlag with the must-see Mezquita, and a medieval Juderia to explore. Then rent a car and do a loop through the pueblos blancos of the mountains. Spend one day driving to Ronda for 2 nights, use the full day to explore Ronda or use it to drive around the area to enjoy the scenic views and tiny villages. Be sure to spend a few hours in Arcos, then return the car in Sevilla. I've given you 8 nights, you could add one to another hill town or Sevilla or Toledo or Madrid. You won't run out of things to see and do anywhere.