This is the way I was taught to (non-rigorously) derive the length of an arc given in polar coordinates, i.e. $r(\theta)$. Take a small slice $d\theta$, and approximate the curve in this slice by a straight line segment, so: $$ ds^2 = dx^2 + dy^2 $$ Divide both sides by $d\theta^2$, plug in $x = r\cos\theta$ and $y=r\sin\theta$, and simplify and rearrange to obtain: $$ ds = \sqrt{r^2 + \left(\frac{dr}{d\theta}\right)^2} d\theta \tag{1} $$
However, once we have a small slice $d\theta$, it would seem to me that, instead of a straight line segment, an equally sensible alternative approximation to the true curve is an arc, in which case we have simply: $$ds = r d\theta \tag{2} $$
Obviously, (1) and (2) give different results in general. I can inuitively understand why this happens - it's because the ratio of the length or the arc to that of the straight line segment does not go to zero as $d\theta$ goes to zero.
But what I can't really understand is why one is right and the other is wrong. Is it simply a matter of definition? Do we just agree to define the length of a curve in terms of straight-line segments? I don't think so, because I strongly suspect that if we had to do a physical experiment using string, it would agree with (1) not with (2).
As noted in the comments the formula (1) is correct for any curve of equation $r=r(\theta)$. The formula (2) is valid only for a circle with center at the origin and radius $r$ , it is a special case of (1), because for a circle of equation $r=k$ we have $\frac{dr}{d\theta}=0$