I literally just beat the dragon about an hour ago. My first few attempts were futile, so I went away and did other stuff then came back with my party all level 11-12. It was much much easier. But rather than the level bump, I was around level 10 in my previous attempts, I think the inclusion of the cipher (Grieving Woman? is that her name?) made the biggest difference. One of her advanced spells is a form of domination that spreads from enemy to enemy like a virus (up to five of them I think). I walked down to the little guy who worship dragons, towards the loot, figuring that was the best way to create a bottleneck. My plan was to confuse and mind control some of the little guys, get them to slow down the dragon and the other goons (sorry, I forgetting the names of all the creatures and NPCs!). But what I hadn't expected, and it worked first time, was that the Grieving Woman's virulent mind control would extend to the dragon itself. Then things got a lot easier - the dragon was fighting its own goons. Whenever it lost domination, I had the Grieving Women cast the spell again. So there was a constant, changing mixture of dragon and its various goons fighting amongst one another, and I just kept the magic users pelting the whole melee with AoE spells. I had to keep the paladin and my PC (a monk) largely out of the fray, in order to leave goons for the Grieving Mother to beat up so that she could cast the pestilential domination spell again.
It still took a good while for that beast to go down, but I only one had a character (Aloth) lose consciousness and quickly revived him. This was on hard difficulty btw.
My party: me (a monk), the paladin (Pellegan?), Aloth, the priest (Durban?), Grieving Mother, the druid (Hize-something?). For once my monk laid out relatively little damage. She was up in the dragon's face keeping it busy a few times, so her dignity is intact.