I must admit that I'm in the DM camp that feels that encounters with dragons should be some of the roughest and hardest ones players face. I tend to use every edge and advantage I can when playing one. That's not to say that the player's can't occasionally put one over on a dragon (often through flattery and other smart tactics) and get an edge on it - the dragon just makes the most of its environment and abilities when I play one.
How a dragon reacts is going to be based a lot on the situation. For any dragon of a decent age, it has experience dealing with the types of threats adventurers pose. Its not entirely unreasonable for a dragon to have counter-tactics for a number of common gambits (many players do, why should a dragon be less intelligent on this front). It is also important to remember that dragons aren't dumb - they should also know when to run away and have a plan on how to do that to escape pursuit.
While the dragon has few spells to work with, it should make the most of them by selecting ones that complement its existing powers. Shield, Mage Armor, Bull's Strength, Cat's Grace, Bear's Endurance are a few which come to mind immediately. Alarm is another simple spell which can make a huge difference for a dragon - if they know trouble is on its way, they can be ready and waiting with their other spells.
As mentioned by others, dragons should
use their magic items. Does that mean that they leave the pile of healing potions laying on the ground waiting for some adventurers to steal? No. They should have them cached in a location the dragon can withdraw to for a quick recovery. The dragon has a wand of fireballs? Well, why not use it on the rounds the dragon's breath weapon is recovering (this also can be a nasty surprise for players who have some sort of energy resistance up against the dragon's breath). Rings should be used, along with any other items the dragon can manage. Make the player's work for all the dragon's goodies.
Terrain. A dragon should know its battlefield, including where it will withdraw to if the battle turns against it. A few additional obstacles, or a lake can make the battle with a dragon much more memorable - a black dragon swooping through the air which dives into a murky lake, only to emerge a few rounds later in a wave of water upon the players is much more memorable than one who crawls along the ground and is nearly as slow as the party's fighter.
Combat. Don't play a dragon foolishly here. Think about how your players would handle a party of enemies equipped like they are. Breath weapons should be used to maximum effect - go for the optimal target as ruthlessly as the players would. If its a wizard tossing spells at the dragon for tons of damage, cook him. If the battle turns into a war of attrition, cook the cleric. Rogues who can easily duck out of the way are sub-optimal targets, a dragon shouldn't bother using a breath on them more than once - anyone successfully ducking a dragon breath completely is going to probably be able to repeat it. Rogues should be dealt with by using melee attacks.
Odds are that parties willl spread out to avoid being clustered for dragon breath. Take advantage of this - engage them in a manner where only a couple of them can bring their attacks to bear at once. If they concentrate in a group to concentrate their attacks, remind them why its a bad idea with another blast of the dragon's breath weapon.
Don't forget the dragon's senses - invisibility shouldn't be an issue for dragons. On the other hand, letting the character think that the dragon doesn't know where he is can make for a very rude shock too.
Another nasty thing to do with hit and run attacks is to snatch up a creature, fly up a bit and drop it (remember that its a free action to drop things held in your hands
![Devious :] :]](http://www.enworld.org/forum/images/smilies/devious.png)
). Gravity takes care of the nuisance while the dragon turns to concentrate on another target.
Finally, dragons, even witout using superior tactics, are IMHO, probably the toughest creatures for a particular CR you will find (compare them to the CRs for giants or a character for example). They are much like rolling a powerful fighter and wizard into one package.