Approach 1 is correct.
You haven't considered all the torques acting on the system (rod + gear 2) in approach 2.
The force corresponding to the missing torque, is responsible for maintaining the pure-rolling motion of gear 2 (constraint: point of contact instantaneously at rest) on the surface of gear 1 at all times. The torque you're missing doesn't do work on the system which is why approach 1 gave the correct answer even though you didn't realize the presence of this torque. I will leave you to figure out this missing torque.