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I really like dragons, and want to use one even at 500pts, and as HE are the only list able to do this, here's the list I plan on using ... only my OK army has less models on the table at this points level 8X
total = 500
To be honest I don't think I would ever take a Dragon in anything less than 1500 games and realistically then only if I knew i wasn't facing a shooty army.
At 500 all i keep thinking is one shot from a XX point Dwaven Runed Bolt thrower and game over. Hey if they have 2 of them then say good bye to the Spear Elves also.
Sorry I couldn't come up with anything more constructive.
I wouln't recomend it. Most opponents at that point level just won't have anything that can deal with the dragon and so it won't be a fun game for them. Then, the occasional opponent will put down a couple of warmachines and take out the dragon right at the start of the game. Then it isn't fun for you...
Thou shalt remember:
Warhammer Fantasy armies do NOT have Codices. They have Army Books.
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You're right about the problems of this list - either it's wiped right off the table, or it kills everything, making the game one-sided in either scenario.
It would be fun in deployment though; start off with a small unit of spearmen ... and all of a sudden, a dragon on the table .
I'll see about making a more balanced list