Let me just say that I, for one, love this kind of discussion.
Like Joshua Dyal, I prefer changing the system to suit the world to changing the world to fit the system.
Just to further complicate the discussion, you might think about how all of these high-powered monsters might have altered the human societies that had to develop alongside them.
In my world, most dragons surround themselves with near-worshippers, who serve the dragon in return for the dragon's protection. The serfs don't have to worry about marauders (what common bandits would want to anger a dragon?), and the dragon has plenty of support and warning if some other powerful group were trying to do something. . .
I also made the decision that most magic requires intensive education and training as well as (non-inheritable) inborn gifts, so that nearly everyone who learns magic to a high level was eligible for a good education (meaning they and their families were invested in the status quo), but that there aren't any inherited magic bloodlines to create an hereditary magocracy. Combine magical rarity with a tendency not to rock the boat and you can logically explain why magic has not had a profound effect on the world. Historically, it isn't until the development of modern capitalism in the 18th century that you have an elite that is interested in upsetting the status quo through innovation. The frequent observations that the misery of common folk was "the way it has always been" are right on the mark.
At the same time, those who have magical gifts are almost automatically caught up in the plots of the powerful. So you can have challenging opponents to battle in realms far beyon the notice of plodding commoners.
Boyoboy is this conversation fun.