the trick i found to play around the approval system in this game is to max it as fast as you can in a way that goes along with your hawke. After you manage this you can play the game the way you want, and that makes the game, at least in rping perspective, much more enjoyable.
[Edit]: just to add something to make my post more in-topic, I like rivalry with some of the companions more, like Anders and Fenris(Merril and Isabella too, but to a lesser extent), because i find their development more interesting in this path, by challenging their views you create a conflict with them, which leads to a discussion about the flaws in their and our ideas and adds drama to the relation, which makes things more spicy. 
I'm pretty sure Hawke doesn't realize how bad the kirkwall circle is until act 3, since act 1 and 2 don't focus too much in the mage-templar problem.
By Act 2, Anders is aiding the Mage Underground, and Sir Alrik's dialogue during Anders' personal quest suggests he enjoys taking personal advantage of Tranquil mages. So my Hawkes usually have a pretty good idea of what's going on in the Kirkwall Circle during act 2.
I'm with you on maxing out the Friendship/Rivalry as early as possible - I generally have it locked in by midway through act 2 if not earlier.
I guess rivaling him isn't necessarily cruel, it just feels kinder and more natural to me to try to establish a trusting, friendly relationship with him and go from there. I feel like if he's exposed to a mage that is neither power-hungry, nor a borderline abomination, nor a blood mage, and who treats him like an equal whose opinions and experiences are worth listening to, he's more likely to start to see mages as individuals rather than as a group of people he needs to fear.
I think rivaling Anders or Isabela would feel more realistic, though. I've seen some of Anders' rivalmance, and it does seem pretty believable. He struggles more with not letting Justice take over, admits to blank spots in his memory, and generally seems more conflicted than he does on the Friendship path. I think my main problem with rivaling Isabela is that I play so many flirty purple!Hawkes, but I do like the idea of trying to get her to acknowledge that being selfish all the time isn't necessarily a good thing.
I guess the bottom line is that while I like the idea of the Rivalry bond, I don't like how it ends up playing out in-game. I think it would have worked better if it had been somehow used alongside the approval/disapproval mechanic of Origins rather than supplanting it, though I'm not sure how that would have worked.