I'd imagine that, if it hasn't already been explained away, the painting of Hiro and the dinosaur is somewhere near number one on Top Ten Reasons Warpers of the Space-Time Continuum Should Never Watch "When Dinosaurs Walked The Earth" on Animal Planet While Drinking Sake. And if it isn't, it should be. Time for the special people to start compiling the Cautionary Tales for the next generation, because they are going to need them. And ethics training. Molly and Micah need ethics training like NOW.
And I totally cannot recall recall whatever dragon story you reference, likely because I haven't watched things through since the finale and I really wasn't focused on the Kensei arc beyond 'ooh, sword' when I watched before then.