I'm Applying for mech eng MS as an undergrad in pet eng, will it matter if i take another mech eng course my last sem or not?
IMO, it won't matter.  Given that you're in the process of applying (which is a time commitment as well) I would recommend option #2.  

A reassuring piece of advice a PI gave me as I began the application process was:
the admissions committee and PIs you apply to work with do not look to see that you are already an expert in the area you apply to, they are looking for evidence that you have the aptitude to succeed in their graduate program.  

NB: I'm in neuroscience--not engineering.  

Good luck!