Its a tricky one. We fall into the second category, with me being a SAHM having given up the career I had before because I no longer wanted to do it. (I don't think anyone should feel obliged to give up a career they love just because they have kids, be they male or female, but I wanted to).
I think in many ways its great for the kids to have me at home full time, always there at pick up, plenty of time to socialise after school and do stuff, and I am a "constant" so to speak, if they are sick I'm there in 10 minutes, that kind of thing.
Its not necessarily been great for me all the time - some people make the most of the relaxed lifestyle, I make almost too much of it and have become quite lazy in a sense and when I went into London for a day trip a few weekends back it nearly killed me I thought how the hell does my DH do this every day even though I used to do it everyday, plus go out at night, get the vomit-comet home and do it all again the next day! (Hour or so commute plus faff of parking and stuff at the station - or taxi obv if drinking)
Part of me envies some of the other parents I have met at school, who have small local businesses, have to watch their money but live well enough, but have loads of time together as a family. At this point we only eat together as a family twice a week tops. (unless you count lunch as well then its 4 times!)
But DH loves his job mostly, hates having to travel but its part of the job, but seeks much comfort from knowing I am here holding the fort so to speak, and able to get other stuff done that used to be impossible when we were both in London (like dry-cleaning - we'd have to drop it off one Saturday and pick it up on the next, as it would be closed by the time we got back!) and woe betide us if we got carded for a parcel at the sorting office, we'd have to get there and pick it up on a Saturday morning, what a hassle! Now all these errands can be taken care of and food is home cooked and stuff, though I sometimes feel a bit like its groundhog day.
You just have to do what is right for you but I wouldn't say either scenario is bad for the children necessarily - my parents both worked, and its "what kind of parent" you have when they are there that makes more difference than how much they are there, within reason - if you are stressed and irritable but there all the time, its probably better to be working and just have 2 hours quality time where you appreciate them, and vice versa - if your job is making you stressed and irritable and you can afford to stay at home then that's preferable. Hope that makes sense!