Already the DR arms race begins.
1. "DR/magic" is easy to bypass.
2. Dragons should be tough.
3. Tough creatures should have unbeatable DR
4. Therefore Dragons should have DR /something we think the players won't have--maybe DR/dragonbane or DR/something else.
This is faulty reasoning. Creatures don't need unbeatable DR in order to challenge PCs. Most of them do just fine without it. (And the assumption that DR/adamantium is unbeatable DR is also faulty--in 3.5e, Adamantium weapons are probably fifth on adventurers offensive shopping list: 1. Masterwork (then magical) cold iron weapon. 2. Oil of Bless Weapon. 3. Silversheen. 4. Scroll of Align Weapon. After that, a character just needs an adamantine weapon and he's prepared for all DRs).
Also, it's wrong to assume that the reduced 3.5e DR values prevent them from being deciding factors in combats. Having run a 6th level party fighting a greater elemental in 3e, I can tell you that, had they not had a +2 weapon, DR 10/+2 could have been spelled TPK. The lower numbers may be easier for some characters to deal with but they still make for significant changes to combats.
Incidentally, WRT supposed legends of dragons only being fought with special swords, here is what the author of Beowulf had to say about that:
When Beowulf was pressed hard by the dragon, Wiglaf came to his aid:
(2620) "And now the youth was to enter the line of battle with his lord, his first time to be tested as a fighter. His spirit did not break and the ancestral blade would keep its edge, as the dragon discovered as soon as they came together in the combat."
Beowulf however had less luck with his sword:
(2680) "Inspired again by the thought of glor, the war-king threw his whole strength behind a sword stroke and connected with the skull. And Naegeling snapped. Beowulf's ancient iron-grey sword let him down in the fight."
But Wiglaf again assisted him:
(2690) "Next thing, they say, the noble son of Weohstan saw the king in danger at his side and displayed his inborn bravery and strength. He left the head alone, but his fighting hand was burned when he came to his kinsman's aid. He lunged at the enemy lower down so that his decorated sword sank into its belly and the flames grew weaker."
Then Beowulf found the weapon that would kill the dragon
(2700) "Once again the king gathered his strength and drew a stabbing kinfe he carried on his belt, sharpened for battle. He struck it deep into the dragon's flank. Beowulf deat it a deadly wound. They had killed the enemy, courage quelled his life; that pair of kinsmen, partners in nobility, had destroyed the foe."
You'll notice several things here:
1. The low level fighter wielding "his grandfather's [+1 maybe--we don't know] sword" DID actually hurt the dragon.
2. The only named sword in this particular passage broke and didn't do anything particularly unusual to the dragon.
3. Beowulf slew the dragon with a blow from an ordinary dagger (and we know he wasn't power attacking b/c power attack doesn't work with light weapons).
These passages don't really indicate any kind of DR at all. (Although DR/magic would work as well--a powerful king like Beowulf would probably have a +1 dagger as a backup weapon). What was necessary in order to slay the dragon was courage and nobility--not a special weapon.
