I like this game! :D
What I did to beat dragon: until around level 6, but swords and use elixirs to heal (and eventually an armour or two). After that, grab Divine Edge asap and heal only by buying armour. Save Divine Edge for dragon.
From the start, the atmosphere is just lovely. After the first time I jumped, I got chills for the rest of the game... and strange thing that a point and click game like this makes you jump! It was so exciting!
Sometimes, the ground is kinda shaking - bad collision detection and execution. Jumping is WAY too slow - not realistic in any way, it's like you have to wait a minute for the dog to come down. The dogs' mouths are really static but I hope you can fix all this for the next release - I'm excited how this turns out! Good luck :)