I think the 'best' approach all depends on your personality and temparament.
As for myself, I do a little bit of both the approaches you mentioned... First I write the bulk of it in MS word or Notepad, adding to it over time. When I am at the point that the text is finally mostly written down (i.e. about 90% of it is there), then I put it on Hubpages unpublished. Then I read over it and make minor changes and additions as needed while it's still unpublished (I do this part in a few short sessions over a few days). During this time I also play around with the layout using 'preview' mode to make sure it looks good (move the pictures around, etc etc). Then I publish it.
I really like the *process* of writing Hubpages articles and having control of the layout, so my incremental approach feels like 'play' to me rather than 'work'. So basically, I do it this way because it feels like a fun way of doing it.