Pinned vs. Grappling vs. Snatch Bite
Pinned is a lot different from Grappling or being Snatched by a bite.
If the PC was snatched with a bite, I agree that the breath weapon would automatically hit, no save.
If the PC is grappling the Dragon, I would allow the breath weapon to work as normal and a normal save for the grapplee to see if he can dodge out of the way or force the mouth out of the way.
If the Dragon is pinned, I would assume that the Dragon's mouth (the most dangerous part of the Dragon), is forced away from the pinning people. So if the Dragon uses his breath weapon, they would get 3/4 cover or 9/10 or total cover (i.e. only getting hit by backwash, not the breath weapon itself).
Tom