I was supposed to do an in class essay on this question, however we didn't end up doing it. While putting together my own arguement, I found that it could have easily gone either way. In the end, I chose to argue sane. Here is my arguement:
3 main points:
1. Any verbal or physical hints of insanity were tools used by Hamlet to trick everyone into believing that he is mad, in order to mask the change in his personality due to his knowledge of his fathers murder.
[eg. almost every discussion with Claudius, Polonius, and Rosencrantz and Guildenstern]
2. When not in the presence of specific characters, Hamlet displays signs of intelligence, and rational thinking. The ability to follow through with his well thought out plan (even though he loves to procrastinate) further demonstrates his intelligence.
[eg. Hamlet's quick thinking used to save his own life on board with the pirates, getting Rosencrantz and Guildenstern executed instead]
3. His change in personality can be justified by the recent events in his life.
[eg. Hamlet's fathers death (mourned for only a brief period of time) and his mothers quick marriage to Claudius]