I think that the array list version is easier to read and in general a collection is going to be easier to work with in Java.

The requirements don't mention that speed or memory are limited, so I didn't try to optimize my code for that. I think that in general best practices would say write the most readable and resuable code and if performance becomes an issue use a tool (profiler) to identify slow points (since the optimizer might actually correct something you assume is a problem).

You spend too much processing power creating an ArrayList to only convert it to an array. Why not declare the array?

Yes, since the string isn't being built in a loop, it is equivilent to using string concatenation. I prefer to use the string builder (and think it is as easy to read).

This is completely redundant, since simple string concatenation is compiled by java to the exact same code as you provided, while leaving source much more readable.