Hi AJ, I am not sure what does this reffer to. If we're talking ALL devices, I don't think it is possible right now to go exclusively either soft or hard-ware.
So, if we're talking ARRANGERS, I'd still choose hardware, because software I believe is not yet right up to the job, eventhough I believe the future belongs to modular software arranger instruments.
If we're talking DAW, software all the way.
So, I'd choose 1. Indeed, the DAWs now offer beside the recording and editing abilities, also a good selection (sometimes huge) of very good sounds. What I haven't seen yet is a proper sofware arranger integrated into a DAW. if you want to come up with something like that - great! You'd be opening a very interesting and challenging direction.
Goodluck with whatever plans you have at Ketron!
Yamaha S770, Studio One 3, EMU 0404USB, ESI, ATH, Dell. And others.