Yikes, better start digging myself out!
Tarranyr has begun spreading rumors in town about 5 eyes and has succeeded in creating much confusion. He has given some folk pause after they mentioned attacking the dragon, but some people think it is such a heroic thing to do that they'll try anyway. People don't quite believe that anyone would defend a vicious maneating dragon, but the dragonewt warriors are a considerable obstacle.
Duke Raus is/was a wealthy landowner who was exiled from Dara Happa (lunar heartland) and given a plot of land south of Sun County, across the river from 5 eyes. He built a fort (called Raus Fort or Ronegarth) and hired a tough gang of Humakti/Yanafel Tarnils mercenaries. The party met his gang once and did not get along well (Caernak dueled one and cut off his leg!). The head Sword, Daine, turned out to be a real racist jerk, but was scary enough that no one messed with him. The Raus family struggled for their first 3 years here (often fighting with the 5 eyes newts), then Muriah, witch queen of the broos, appeared in the nearby village of Weis and took out a vendetta against Raus. Raus's wife was one of the first to die from the plague. It wasn't long before everyone in the area fled for their lives, some dropping dead from disease on the way back to Pavis. Duke Raus has lived in Pavis since 1619, slowly increasing the price on Muriah's head (it is now 300 wheels; 6000L). He has generally been friendly to the party, or at least neutral. Daine is still a jerk and it's a wonder he's still alive. The dragon has been a distant enemy of Raus since Raus moved in, but Muriah is a more personal issue. 100W to slay the dragon is small, yes.
Taleo can't recharge the matrix; it needs a Yelmalio worship ceremony. He won't hold a worship ceremony just for that. Yes, it seems that the arrow shot predates the dragon's landing. So far no one has claimed responsibility.
No LM holy day passed since the broo hunt; next one is ~4 wks off. The 5eyes newts think that it is best to heal The One now. The arrow must be extracted first. It is lodged in a gap in the dragon's scales and looks like it will take a strong tug to get out. Leader newt: "The One slumbers and contemplates his vengeance. We speak only to honor him, not to disturb his thoughts." Doomed newt: "If you rouse The One's anger, stand firm. Your death will be swift and honorable. Magics will only prolong the pain. Imagine the glory you will find as your carcass is slowly integrated with the body of the One."
Taleo knows Shield ?3?. He doesn't care much what happens to the dragon, but trusts Arcus's judgement and would use his shield spell on Arcus if asked.
Tarranyr: "How much danger is there of this esculating into a race war? If things are truely dicey it would seem that the Lunars would have an interest in keeping things calm. Would they try to "do the right thing" or just stomp any troublemakers?"
With the lunars, such questions must be rhetorical. Their plans and priorities are always murky. It is likely that they would seek to squelch dissent if any arose, but who knows?
5 Eyes eats anything and anyone when he is hungry. He has been quite indiscriminate in his diet but abhors carrion; live prey only.