do you need these vars on the class level, given that they are supposed to be relevant on a per instance basis?

class MyClass:
    def __init__(self, name='Undefined', number=-1):
        self.name = name
        self.number = number
    def __str__(self):
        return '{0.__class__.__name__}(name={0.name}, number={0.number})'.format(self)

print(MyClass())
print(MyClass(name='Joe'))
print(MyClass(number=11))
print(MyClass(name='Joe', number=11))

The two snippets do different things, so it's not a matter of taste but a matter of what's the right behaviour in your context. Python documentation explains the difference, but here are some examples:

Exhibit A

class Foo:
  def __init__(self):
    self.num = 1

This binds num to the Foo instances. Change to this field is not propagated to other instances.

Thus:

>>> foo1 = Foo()
>>> foo2 = Foo()
>>> foo1.num = 2
>>> foo2.num
1

Exhibit B

class Bar:
  num = 1

This binds num to the Bar class. Changes are propagated!

>>> bar1 = Bar()
>>> bar2 = Bar()
>>> bar1.num = 2 #this creates an INSTANCE variable that HIDES the propagation
>>> bar2.num
1
>>> Bar.num = 3
>>> bar2.num
3
>>> bar1.num
2
>>> bar1.__class__.num
3

Actual answer

If I do not require a class variable, but only need to set a default value for my instance variables, are both methods equally good? Or one of them more 'pythonic' than the other?

The code in exhibit B is plain wrong for this: why would you want to bind a class attribute (default value on instance creation) to the single instance?

The code in exhibit A is okay.

If you want to give defaults for instance variables in your constructor I would however do this:

class Foo:
  def __init__(self, num = None):
    self.num = num if num is not None else 1

...or even:

class Foo:
  DEFAULT_NUM = 1
  def __init__(self, num = None):
    self.num = num if num is not None else DEFAULT_NUM

...or even: (preferrable, but if and only if you are dealing with immutable types!)

class Foo:
  def __init__(self, num = 1):
    self.num = num

This way you can do:

foo1 = Foo(4)
foo2 = Foo() #use default

Let's illustrate what's happening here:

Python 3.1.2 (r312:79147, Sep 27 2010, 09:45:41) 
[GCC 4.4.3] on linux2
Type "help", "copyright", "credits" or "license" for more information.
>>> class Foo:
...     def __init__(self, x=[]):
...         x.append(1)
... 
>>> Foo.__init__.__defaults__
([],)
>>> f = Foo()
>>> Foo.__init__.__defaults__
([1],)
>>> f2 = Foo()
>>> Foo.__init__.__defaults__
([1, 1],)

You can see that the default arguments are stored in a tuple which is an attribute of the function in question. This actually has nothing to do with the class in question and goes for any function. In python 2, the attribute will be func.func_defaults.

As other posters have pointed out, you probably want to use None as a sentinel value and give each instance it's own list.

You can use inspect.signature to obtain the parameters of the __init__ method of each "base" class of class C, and let C.__init__ accept variable keyword arguments, so that it can iterate through the "base" classes and pass to the __init__ method of each just what it needs and what the given keyword arguments have. Use itertools.islice to ignore the first parameter, which is always self:

import inspect
from itertools import islice

class C:
    bases = A, B
    params = {}
    for cls in bases:
        params[cls] = inspect.signature(cls.__init__).parameters

    def __init__(self, **kwargs):
        for cls in self.bases:
            setattr(self, cls.__name__, cls(**{key: kwargs[key] for key in 
                islice(self.params[cls], 1, None) if key in kwargs}))

so that:

c = C(one=3,value='hi')
print(c.A.one)
print(c.A.two)
print(c.B.value)

outputs:

3
2
hi