My current character is a puppet of the daedric princes, so I'm trying to do what pleases them most. However, I'm not sure how to handle Hircine's quest. He obviously wants Sinding dead, but if you defy his wishes and help Sinding, he seems to be happier in his post-quest dialogue. Am I correct in thinking that he actually prefers it if you defy him?

Hircine may be happy if you spare Sinding but remember that your character doesn't know Hircine is pleased if you spare Sinding. Unless the Dragonborn can see the future, you better kill Sinding as your character is defying Hircine as far as they know when they spare Sinding.

Not necessarily, it doesn't take a prophet to predict Hicrine would enjoy turning the hunt inside out even more. Really all it takes is a rudimentary understanding as what kind of bastard he is.

Yes but it's also probable that Hircine would be miffed at not killing Sinding. Better to be safe and just kill Hircine.

One can always kill both.

hircine loves a good hunt, whats better then turning the hunters into the hunted, that why he seems more happy.

how the [censored] am i supposed to kill an immortal prince of hunting.

This is how I see it.

Our characters have never met Hircine before. How could they know what kind of bastard he is ?

All the daedric princes have a reputation most of them bad. You can know hicrines rep before talking with him.