Well, when the DM creates the campaign world, he has created & placed the dragon. Dragons get more powerful as they age, so depending on when the PCs go there, he'll be what level is logical and consistent with the time that has passed.
In a sand box campaign, that's how it is determined... Now from what I understand, 4.0 uses something akin to the Heisenberg uncertainty principle.
That isn't how sandboxing works...
Er, what in the world are you talking about?
re: The Grind
I think the OP is not understanding Stalker's post or the "complaint" about the grind. Just like 3e, it's possible for a party to overcome an encounter that is higher than their level.
In the DMG this overlimit is level +4 (although a seriously well-oiled team can make it level +5.). Certain types of encounters and monsters tend to drag if the DM isn't careful (A solo at level +4 will take longer than 5 individual level +4 monsters)
After which, you're looking at TPK. This is exactly like 3e in that respect. The difference between 3e and 4e is that in 4e, unless you're talking an entire tier (10 levels), the monster is unlikely to kill the entire party in the 1st 2 rounds. You probably have to use a level difference of 15 to get that effect.
As others have stated, I would think the 4E version would be better for sandbox play since there's a window of opportunity for the PCs to realize "oh crap we're in trouble" and then book it out of Dodge Cty...