Well you have to remember Midgar is still in a very weak state in 3.0. As mentioned back in 2.5, Midgar is still recovering so the amount of power he has is very minor which can prevent anyone from noticing his presence. The largest size he can take form in now is the mount form but that is only at the end of 3.0 when he has gain back a slight amount of his powers.
As for Ishgard's hatred of dragons born from a false belief.....
The habit won't stop as shown through Dark Knight Job quest and is even mentioned at the end of 3.0 it will take generations before this habit stops and peace can be obtained.
