peterfares wrote:wrapping the steering wheel and covering any areas the soldering iron could touch
I doubt there's that much risk of directly touching the steering wheel. For the most part, you're working on the inside of the dash, and the nearby surfaces aren't anything that'll be visible after it's all put back together. Depending on your skill/experience level at soldering (and considering the number of connections to be made), it's possible that a blob of solder could fall off the iron, so maybe also cover up other things like the front part of the seat cushion and whatever's below your work area. Wear long pants. Be reasonably careful to not brush the iron against other wires and melt/dent the insulation. The Altima's wiring seems to have a type of plastic insulation that's tough and heat-resistant, though.
peterfares wrote:How do you keep the car from smelling like solder?
Just don't breathe the visible smoke. Other than that, there's not that much smell. I recommend a 40-watt iron, and use a damp sponge pad to keep the iron tip clean. If it's a heavier-gauge wire and the joint needs to carry a larger current, use an inspection mirror to check the joint afterward, and see if there was enough solder to cover both sides.
peterfares wrote:And how should I 1: [...] or 2: [...]
However you want. It'd be neater like #1. The car's wires always tend to be in a bundle with the other wires of the same connector. When I splice things in, I generally try to keep the spliced wire about the same length as it originally was, so that pulling on the cable doesn't put all the stress on that one wire. After cutting the original wire, stripping it and bending each stripped end to form a hook, there will end up being about 1/2" gap between them. This gap gets spanned by the new wire that I'm adding in. The end of the new wire is formed into an oval loop, and the two pieces of the original wire hook into it. Smash it all flat with needle-nose pliers, make sure it's all smooth without any sharp strands sticking out, and solder. On the side of the joint with your added-in wire, it helps to use a temporary piece of electrical tape to hold the two wires parallel and close together while you're soldering it.