As far as the Dragons go I suggest you run a search here for the threads where such topics are covered in overwhelming detail. Suffice it to say that they are killable and I am wearing the red dragons hide as my favorite suit of armor.
As for Watcher's Keep,first go the air lab and overcome the air elementals there. Get the Scepter of air. This will allow you to open the other door of the air lab,one of the doors to the slime room and adjust the speed of the fan(very useful for later). After the air guardians bite the dust, use the scepter to turn on the fan. Then you can go the slime lab and fight the guardians there and get the slime scepter. Look all over the place and you will find notes on how to get the upper hand on these critters.
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Grinch
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