In Ishgard's words, she laid down with a Dragon. In Iceheart's words, she tried to made peace.

With this, we can say either Shiva conspired with the Dravidian Horde or she associated with them, much in the same way our Hero does with the Beastmen Tribes of today.

In any event, there is always a kernel of truth in legend, and I am quite inclined to believe that when Ishgard says Shiva had sex with a Dragon it means that Shiva had sex with a dragon. Shiva could just have fallen in love with a Dragon unwittingly, accepting it when the truth was revealed. An act of love would be a great signal of a peaceful union; an act of debauchery with the enemy would a great signal of depraved lunacy and treason.

I just want to know which Dragon are we talking of.