Well, I always kill it real-time. Last time I played MM7 was quite a while ago, but if I remember correctly I was playing Wizard Druid Cleric Wizard.
Here is how I do it: all of my spell-casters know Poison Spray, as it's level 1 spell. I buy all the bottles and blue reagents I can find (usually more than I need); I learn one level at a time, kill the mosquitoes as a fun past-time, go and buy the stuff and so on until I can learn no more.
Then I go to the cave, lure the dragon in the far left side and go back to the entrance: there is a small niche where the dragon doesn't see you. I go forward, hit it with 3 poison sprays (if I'm lucky...), go back, heal and drink blue potions if necessary, go on again, etc. Kinda like the same strategy as I use for the Chaos Lord; that's why I'm so used with it...
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