I have rented cars in Spain, both in Madrid and in Malaga airport. I have a California license and have never been asked to show an International Driving Lic in Western Europe. The only place I was asked is at the border of Austria/Czech Rep where the immigration officer said I should have an Int'l license next time.
I have not been stopped by police in Spain so I have no comment about that. I would always carry my license AND passport when driving. I would hire a car from a reputable and large company even if it means paying a little more.
Traffic can be cumbersome in Costa del Sol, depending on the time of day and time of year. It can be crowded and parking may be a pain.
Take a deep breath and give yourself extra time so you can enjoy Andalucia.
Another suggestion is to go inland to some of the small towns outside the coast. You will find most of the coast to be very commercial, crowded and touristy. If you want a more laid back scene, go inland.