O.K., the "Dragon as Ship Wreck" is an interesting theory, but I think there is a simpler explanation...
First, we all seem to agree that Atys is a living planet, constantly refreshing its surface with new growth. There also seems to be a general consensus that the world is expanding, getting larger (maybe not, read on). And from everything I've seen, the basic laws of physics ARE obeyed.
So...
1. If the world is actually constantly expanding, there must be an influx of "fresh" new matter from somewhere (possibly the "dust cloud" it passes through?) or else this planet would have to recycle its "core" to the surface, leaving it hollow, and eventually as thin as parchment. If new matter (mass) is being added to the planet, the core will be getting squeezed by the increased gravity (a product of mass, not density).
2. If the world isn't adding new mass, and it isn't getting hollow, then it must be recycling its core to the surface (via the roots, like any plant) and "pushing" the old surface under to fill the hollow space that would otherwise be created. This "pushing" under will cause compression and friction as the larger surface is pushed into a shape/size with less "surface area".
Now, either way you look at it, the squeezing of the core will generate heat (tremendous heat!) through friction. At some point the heat generated will result in a melting of the minerals (elements if you prefer) that make up the raw materials being so squeezed. "But wait! Atys is Wood! Won't it burn?" Well, remember, "fire" requires heat, fuel AND an oxygenator (or other donater of energetic electrons). If wood is not exposed to the atmosphere, it won't burn, it just gets hotter.
All this heat has to be released somehow. On most planets, this occurs through thermal "vents", ranging from things as innocuous as "hot springs" to things as violent as explosive volcanic events. On Atys, I've seen no evidence (so far) of volcanic events other than (possibly?) Scorched Corridor in the desert. The heat could be "bled off" as the energy source for the rumoured terra-forming "machine" which would require tremendous amounts of energy to operate. Or the heat could simply be trapped in the core, awaiting the day when it generates enough internal pressure to fracture the planet's shell and escapes into the atmosphere.
Either way, I think the "dragon" of legend is simply the planet's core, and if we venture too far below the surface we risk exposing the core, either through the weakening of the shell allowing it to fracture, or exposing the terraforming "machine" and its energy source. Expose this superheated material to the atmosphere, and you have a catastrophic "fire" event the likes of which no living Homin has ever witnessed (The Dragon's Breath, the Fire in His Breast/Belly).
That's my theory, anyway. And the reason I choose not to follow EITHER the Kami or the Karavan. Now, if I ever had reason to believe that Jena or Ma-Duk actually existed I MIGHT be tempted to follow either or both, but then again I've been known to follow a cute Trykerette just to watch her cute little bouncing tush!