Should I kill the Shadow Dragon? I can get by him with the stone so I don't have to fight, but will I get something nice out of it if I do kill him?

You get some treasure Gems and the like I think, the true scroll of Crom Faeyrer and his scales which make great armour for a thief or a stalker.

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Any tips on how to kill him?

lower resistance by 3
breach
slow
offensive magic

all this happens as fighters attack

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Some people have problems killing dragons. I died about 4 times, trying to kill this guy, before I finally got him. So if you are not confident about your fighting strength, then no. But he is evil, so killing him, is not bad, even for good characters.

I dont think he has anything you NEED. If thats your question.

The only one of those spells I think I have available is slow. ANy other suggestions?

Wait till you gain more power or if its a case of I dont know the spells head off by the scrolls learn them and then kick its ass.

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Only need two spells: Lower resistance and Magic Missle.

Just occupy him with your fighters and/or summoned creatures. While that is going on cast lower resistance 2 or 3 times. Then just hit with magic missles. I had three mages in my group (well, a mage, Aerie and Jan). Each could cast MM 5 times (15 times total). Each spell did around 20 points of damage. 20*15= 300 damage. More than enough.

if you can cast about 2 or 3 lower resistance before engaging him most spells should work. I had a wizard bezerk script on my mage at the time and he somehow killed him with a disintergrate. I didn't mind until I found out that the black dragon scales had been disintergrated too. DAMN!

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ShadowMaster of the Theives of Darkness.

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this is what worked for me with the Red: cloudkill and haste.
so get your trusty wand o' cloudkilling greatness and shot about 2-3 o' the bad boys and watch the big bad dragon choke and gag. then when he's about to cast heal on himself haste your party members (who are wielding Dragonbane and Dragonslayer and the Holy Avenger right? RIGHT!?) and have them kick the ever loving sh*t out of him.