Using the dragon can be boiled down to two steps:
While there is quite a bit more to the dragon than this as an avatar, that's all which is required to start using the dragon. The AO will take care of the rest of the animations.
Issues and Guidelines
SL may render your character as deformed on other people's clients, while rendering your character normally on your own client. You will only need to tap the undeformer and the process will complete with an audo-deletion of itself. This is currently our easiest solution, with the alternatives being teleporting some sims away and back, or relogging. The undeformer object will automatically delete itself after 30 seconds if it's unused.
Even while deformed, the avatar's collision box is that of a regular size character, and attachments are phantom. It is possible to provide accurate collision detection, but it's very impractical since it would require constant updating of an invisible object which requires script and object creation/entry permissions on every parcel used. Besides, it's fun to poke the dragon's head through windows and doorways, even if there is a little clipping involved. :)
These features require object creation to be enabled on the parcel where they occur.
Yes, on Page 1 of the HUD the button labeled Flapping Toggle will shut off the flapping noise.
Chances are you're in an openspace sim, which simply cannot handle complex scripted objects. This is an issue for any complex item in SL on any openspace sim, I'd recommend doing customization in a regular sim. The HUD will inform you that you're in an openspace sim and that performance may be poor when you use any customization button on page 1. You will only get this message once, until you cross a sim border. Alternatively, you can look up the type of sim by finding the total prim count by going to the objects tab in the land window. If the total sim prim count is 3750, it's an openspace sim. Regular sims have 15k prims or more. Slowness may also be induced by the overpopulation of avatars or excessive/inefficient scripted items in the current sim.
Alternatively, there may just be something in the sim that's causing lag. Try moving to a different sim and see if the problem persists.
Non-monotone textures should be applied to white parts, tap the white selection under “Default Colors” and the texture should draw correctly. As a rule of thumb for dragon customization (and anything else in SL for that matter) is that monotone textures are usually the best type to tint with colors, and colorful textures are best left “white” so the original colors remain pure. This doesn't mean that colored textures can't look interesting with some tint, but they'll lose their multi-toned effect.
If you clicked on a livery that has the decals turned off, and used that as a base for your custom livery, you will need to make the decals opaque (visible) because they're currently set to full alpha (transparent). This is done by clicking the red partially transparent sphere icon with the up arrow. There are ten levels of transparency, so to make it fully opaque you would click it 10 times.