I had messed with some of the config and .ini files to tweak some settings and ended up kneeling at the chopping block while the executioner just sort of stared at me and what's-his-face walked perpetually into a haystack. Then the dragon shows up but instead of landing and getting on with the scene he just sort of chilled out doing loop de loops and flying around the town for lulz. It was actually kind of funny, except for the whole uncertainty about whether the game is borked or not factor.
I ended up deleting the modified .ini and config files, then had STEAM re-validate my install and download the now missing default files. Problem solved, and I've since gone back in and re-made the changes I wanted with no issues whatsoever.
Don't get hit and hit it until it dies, in that order. Kill it, carve it, wear it, repeat it.