Natsu and the other dragon slayers were reincarnated or reborn similar to a phoenix when it reaches it's lifes end and is reborn again. Wendy's dragon confirms that Natsu and Wendy were potential enemies a long time ago and of course the time leap theory wouldn't work since Wendy is a little child now and Natsu is much older and grew up in the guild as a infant many years ago.
The dragons are legends simply because no one has ever defeated or slayed them over the hundreds or thousands of years they have been around. Gildarts is a good example, everyone reveres him because of his insane power shown recently against Natsu but the Black Dragon made Gildarts look like fodder when he came home with missing body parts.
I think we really won't know more or the truth until the Dragon King Festival takes place.
Edited by Dreamer, 12 November 2010 - 01:05 AM.