We fly from Cincinnati, and we are exhausted when we get there. The good news is that you're arriving while the sun is still up. That helps.
#2 has two downsides, IMO.
1) Your intraisland flight time is really tight, especially since HawaiianAir (I assume you'll fly HA) is reportedly no longer accepting checked-through baggage:
"Beginning May 1, 2012, Hawaiian will not through check bags to other airline flights unless the other airline segments are on the PNR for which the passenger is checking in."
http://beatofhawaii.com/new-baggage-...t+of+Hawaii%29
This means that since you're purchasing your intra-island flights separately from your mainland flight, you will have to retrieve your bags from baggage claim, then re-check them in to Hawaiian Air, plus go through Security again. Rumor has it that HA was forfeiting a lot of baggage fee revenue by allowing folks to check through to their destination, so they've closed that loophole. Not only is this change a major nuisance for passengers, but it'll cost you a second set of luggage fees.
Given this and the 30 minute in advance check-in requirement, if you choose option #1, I'd allow at LEAST 2 hours between flights. Also note that your mainland carrier will not communicate delays to HA (because they didn't book your HA flight), which means that if you don't show up on-time, they will treat you as a no-show.
2) You WILL be exhausted. 5pm is Hawaii is 10 to 11pm East Coast time. So if you take Scenario 2, ultimately arriving at your hotel at 9pm or so, it'll feel like 2am. Assuming you've gotten up early for your mainland flight, you'll have been up for nearly 24 hours.
Personally, I'd go with #1. Upon arrival, I'd get my bag and hail a taxi to the Moana Surfrider for dinner and sleep. Don't be surprised in you're fast asleep by 9pm.
And since your place in Kauai probably won't allow you to check-in until 3 or 4pm, I'd make the most of that 2nd day on Oahu. I HIGHLY recommend both the USS Arizona Memorial (aka Pearl Harbor), plus any of the guided tours on the USS Missouri, time permitting. (Ask for a late check-out at the Moana.) The great news is that the park now allows folks to book their USS AZ tour time online for a mere $1.50 per person, so you'll know your tour time in advance. Take advantage of this great enhancement to book tickets ahead of time. Since you'll undoubtedly rise before the sun does, don't be shy about booking an early time, like 9am time. (Note: Tickets are supposed to be picked up an hour before your tour start time.)
If you go, pay careful attention to the rules and regulations on visiting Pearl Harbor. They used to not allow baggages of any kind, including camera cases and purses, but they may have relaxed those rules now.
http://www.recreation.gov/tourDetail...d=317399&cat=1
Good luck with your decision!