On the 1st round the Wiz would know that the area with the creature (polymorphed dragon) in it (60' cone) had some magic active.
On the 2nd round (assuming the dragon was still in that area, and allowed it), the Wiz would know the power of that magic. I'm assuming it would be related to HD, frankly. Keep in mind the Wiz still doesn't know that the polymorphed dragon itself is the source of the magic.
On the 3rd round (again, assuming the dragon doesn't care), the wizard would finally be able to know that the dragon itself was magical. The wizard could try a spellcraft check (15 + half dragon's HD) to know it was from the Transmutation school.
Not exactly, the wizard will only find out that there is transmutation magic, but not what kind of magic (Polymorph) or that there is a dragon. As Nail said in the second post.
So, the spell would not really detect the polymorphed dragon, but only the fact, that this person the wizard looks at has transmutation magic active, which could mean just about anything.
It would give some hints into the right direction, of course, but not more.
Of course, a small animal with transmutation magic would be kinda suspicious.