Really, is it such a stretch to believe that tales of such beings could be exaggerated many times, with them getting bigger each telling?

There's an entire genus of these Dragons. Very small, yes, but... one can imagine a chance mutation, say one which results in a new set of back legs which serve only to hold the wings, allowing full use of the normal set of legs. Such a creature would not be at a disadvantage... if, later, mutations in their descendents result in one attaining the capability to fly, rather than glide, it is easy to imagine the possibility of this rapidly spreading throughout a population. Once you have Dragonets...

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Formerly DragonRider. Almost teenage me could have been more imaginative with names.

Granted, the first mutation that would be needed would probably be one resulting in a Coelurosauravus like creature, though that's not too hard to imagine - indeed, it may be that such a trait could be bred into them.

Creating a Dragonet may not be all that difficult. Would it not bring much profit to my lab because of pet sales? :p

Of course, such creatures may already exist -there is much we've yet to find. Say, tales of exotic places reach Medieval Europe, with flying lizards which have wingspans of 30... centimetres, not metres, but don't tell them that... which were slain by our brave knights... for added effect, add in something about their flaming hot breath.

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Formerly DragonRider. Almost teenage me could have been more imaginative with names.