We are discussing options for our new servers. What do you think would be best? Having a entire second server for backup or having a second hard drive and doing daily backups to it (not RAID 1)?

Second server for backup. You can backup multiple servers with one server using NFS. The load on the server will not increase so it's much better.

yeah! second server would be better option.

If you can afford a second server along with enough bandwidth to do the backups, then that's definitely a better solution, so if someone hacks your primary server (heaven forbid), you won't have to worry about the backup hard drive being erased.