Are you planning to pick up the car in one country and drop off in another? If so, have you looked in to the staggeringly high drop-off fees?
We were there in September and October 2008 (had a wonderful time) but ended up renting two separate cars - once in Portugal, once in Spain. The drop-off fee they wanted was something like 500 Euro, so we went to Plan B (which was complicated, but it worked).
We picked up our car ini Lisbon and then drove away (that was all the driving in Lisbon that I wanted to do).
As for the hill towns, we absolutely LOVED Arcos and liked Ronda pretty much, too, but the part we liked the most was spending the night there - like many popular places, once the tour bus crowd leaves, the places are quite different. I wouldn't have missed the nights we spent there, they were highlights of our trip (and it was a great trip, so that's saying something). If it were me, I would seriously consider overnighting in Arcos especially, and also in Ronda.
But don't even think of driving into Arcos itself. We parked in a lot at the base of the old town and took a taxi to our hotel up in the old town - and we were very, very glad we did. Ronda wasn't that bad to drive in by comparison, but driving into Arcos? Fuggedaboudit.
We dumped the car upon arrival in Granada, and took trains the rest of the way. I'd probably think twice before trying to drive into Seville.