Jaron I figure you probably have missed it since it is 2 pages back now. But today I asked for a full write up of your definition of TD. I have done the same from Beholder and I will do my best to poke holes in each as well as get a firm understanding of any implications of each.
Okay, here goes.
There's a lot of confusion about the True Dragon type, mostly because when it was created it wasn't terribly important. At the time of the MM's printing being a True Dragon was just one monster category you could be in, much like Dire Animals or Dinosaurs. Nothing in the rules cared whether you were one or weren't, so it wasn't necessary to have a proper definition and the designers saw no need for a (True) subtype on dragons (if they had, this would all be easy). Instead, True Dragons were loosely defined in that book... the book was only talking about the dragons listed in itself. This is obvious from the line about "known True Dragons" which implies there might be other unknown ones, as well as the fact that it mentions all dragons being winged (when many aren't) and all true dragons being metallic or chromatic (when virtually all True Dragons found outside the Monster Manual are neither). Other books added dragons to the True Dragon category, making the occasional references back to the MM entry because there wasn't need to reprint the exact claw damage tables or exact age category times.
But then a few books started having a need to have a strict mechanical definition of True Dragons, since they had mechanics that required being one as a prerequisite. Dragons of Kyrnn has a feat that requires being a True Dragon to take the feat, and only works on True Dragons. Draconomicon has True Dragon only PrCs. Dragon Magic has Dragon Pacts, where one person must not be a True Dragon and the other must be one. And Dragons of Eberron has abilities available only to True Dragons, some of which are a bit powerful... so it became necessary to have strict rules on what, precisely, was a True Dragon. Clearly the MM stuff wouldn't work, as that had already said it was only about "known true dragons" and the description there didn't actually match virtually any other True Dragon printed in any other book. So each of those new books had to use a consistent definition. Here's what each of those books said.
Dragons of Krynn, after saying the feat only works on true dragons, says "true dragon(a creature of the dragon type that possesses an age category).
Dragon Magic, after saying you have to find a true dragon to make the pact with, says "true dragon (a creature of the dragon type with 12 age categories)"
Draconomicon, in the sidebar on page 4 that defines true dragons for the rest of the book, says "True dragons are those creatures that become more powerful as they grow older."
And Dragons of Eberron just states that it uses the rules from Draconomicon.
Now, note that these are the only times the game is clearly defining the term for rules purposes. The Monster Manual is only talking about what's in its own book. Draconomicon even says "For the most part, this book concerns itself with the ten varieties of true dragon described in the Monster Manual" so we know that when it's talking about True Dragons in general it just means those (but it has that clarification right underneath that defines what a True Dragon is, so you're not confused). But here we have actual solid definitions. None of them contradict each other (so primary-secondary sources is irrelevant). And putting these together, the definition we get is the following:
"A True Dragon is a creature of the dragon type that becomes more powerful as it gets older, and has 12 age categories."
That's nice and simple. Do Dragonwrought Kobolds qualify? Absolutely. They certainly have 12 age categories (given on page 39 of Races of the Dragon). They're of the dragon type (The Dragonwrought Feat does this explicitly). And they get more powerful as they get older (they get a total of +3 to all mental stats, and DMG page 170 specifically states that characters with higher stats are "high powered characters."). For further evidence of what "more powerful" means (I can't believe I actually have to show this) try an SRD search for the word "powerful." You'll see it's basically following the dictionary definition, and the majority of the time in context it could not possibly mean "advances by HD" by any reasonable reading of the text.
So, why the confusion? Well, first off you've got the fact that Draconomicon spends pages and pages talking about the True Dragons in the Monster Manual, but does so as if it could be talking about all True Dragons, even those outside the Monster Manual. If you missed the bit on page 4 that specifically says it's primarily talking about the Monster Manual 10, it's easy to get confused on this point. But if you read the sidebar completely, it's clear that the definition in the sidebar is the actual definition to be used when figuring out if something counts as a true dragon, while the descriptions everywhere else are just talking about the Monster Manual dragons. The other obvious clue is that a lot of what's said outside that sidebar doesn't apply to a huge number of True Dragons... for example, it says all true dragons are immune to at least one energy type, even though Chaos Dragons (from that same book) are not.
Likewise, somehow some folks are thinking that the Monster Manual is talking about all true dragons, not just the ones in that book. But notice how few dragons actually fit the Monster Manual's definition. It states the following things about all true dragons (and in parenthesis, I'll leave in which True Dragons don't match).
*True Dragons have wings (all but one Lung Dragon, Brown Dragons)
*True Dragons are reptilelike (Li Lung dragons)
*True Dragons are among the most powerful creatures in the world (This doesn't apply to any of them, since only two are epic creatures and there's plenty of stronger things out there. But it does apply if you're
only looking in the Monster Manual)
*True Dragons are all chromatic or metallic (Lung Dragons, Gem Dragons, Planar Dragons, and IIRC a few Faerun Dragons)
*True Dragons only get to more than 100 feet long after attaining the status of Great Wyrm (Epic Dragons, which are bigger than that from nearly wyrmling status)
*A True Dragon attacks with its powerful claws and bite (Pan Lungs, which don't even have claws)
*True Dragons cast spells as a sorcerer (Lung Dragons, Incarnum Dragons, Gem Dragons)
We've just eliminated over 2/3s of the True Dragons. Obviously, this is not a definition of True Dragons. You'll find the same thing happens with the general descriptions of True Dragons in Draconomicon... but not in that sidebar, which is actually giving a definition. I'm not saying you should ignore either book, but that what they say should be read in context. If one's talking about "known true dragons" then that doesn't mean every true dragon out there. If one says it's mostly just talking about Monster Manual true dragons, then one shouldn't assume it's talking about every true dragon either. And certainly, claiming it's talking about all true dragons in the paragraphs where it hasn't specifically said "known true dragons" is silly... it says they're all winged and reptile like in the first sentence of the paragraph before it, and that alone would eliminate all lung dragons if we followed it as a definition.
Note also that Dragon Magic was written later, which means the summary "a dragon with 12 age categories" was intended to be a summation of the Draconomicon rules. This actually works, because all dragons with 12 age categories also get more powerful as they age, so there's no contradiction there.
The other point of confusion is targeted on Draconomicon's page 4 sidebar definition of Lesser Dragons, by taking a specific interpretation of "advance through age categories," claiming that it means "Advancement: by Age", then saying that anything that doesn't do this must be Lesser, and therefor can't be True (implying that being lesser trumps being true). This is false on a number of levels.
First of all, if we read the sidebar, it actually says the following (I'm cutting out irrelevant text, but feel free to read it over in context to confirm):
"True dragons are those creatures that become more powerful as they grow older... Other creatures of the dragon type that do not advance though age categories are referred to as lesser dragons."
Now, reading this we can see that first you check to see if something is a True Dragon, then if it's not (if it's an "other creature of the dragon type") you check if it's lesser. If something somehow got more powerful as it grew older but also didn't advance through age categories, it would still not be an "other creature of the dragon type that do[es] not advance through age categories." It's not an "other creature" at all. So even looking at the "advance through age categories" is doing it wrong, if you've already established that they're a True Dragon.
Second, it assumes "advance through age categories" must be the same as the keywords "Advancement: by age." This is equivalent to saying that "powerful attacks" is the same as the keywords "power attack." It's not. The fact that Dragon Magic summarizes the definition of True Dragon later on as just being "a creature of the dragon type with 12 age categories" indicates that "advances through age categories" just means that it passes through age categories as it ages, nothing more. All creatures with age categories would advance through them.
Third, it then claims that because of the "other" statement that we had to ignore just to get to this definition, a dragon can't be lesser and true, therefor it's lesser if it qualifies for lesser and can't be true. But this is backwards. That same "other" line clearly states that if you're a true dragon (and thus not an "other creature of the dragon type") you don't even look at the lesser dragon category, so actually being True trumps lesser. Furthermore, considering the other places where True Dragons are referenced don't even reference lesser dragons at all, clearly what matters more is whether you meet the definition of "True." There is no evidence anywhere in the rules that Lesser trumps True, and everything points the opposite way.
Fourth, if you read it that way, you get a bunch of contradictions. Kobolds would count as both lesser (via the "do not advance by age categories" version) and true (they get more powerful as they get older) in Draconomicon. They would count as True in Dragon Magic and Dragons of Kyrnn. And since Dragons of Eberron just inherits from Draconomicon, they'd be both Lesser and True in that book as well. In any rules interpretation situation, if there are two possible readings of the rules, where one fits with other rules and the other creates a bunch of contradictions, the one that fits is the correct one.
So that's four reasons why that interpretation is completely nonsensical.
So why does this get debated at all? Because Dragons of Eberron decided that all the PC options for being a True Dragon were really weak (for the most part, that's true, mostly due to the LA and racial HD) and decided to buff True Dragons significantly. And while that book was being written, another book (Races of the Dragon) was being written where the authors thought it would be cool to have Kobolds actually count as miniature True Dragons (read over the fluff in that book, it's obvious they were aiming for it). And the two groups weren't talking to one another, so suddenly it overpowered Kobolds like crazy. But just because something's broken doesn't mean it doesn't exist.
Now to be clear, none of this is saying "you should totally let me play a dragonwrought kobold in your game and let me break it!" This is just a discussion on what RAW says, nothing more. I'd generally recommend not allowing any of the Dragons of Eberron nonsense in most games unless you really wanted a super high powered game.
TL;DR version:
Dragons of Krynn, after saying the feat only works on true dragons, says "true dragon(a creature of the dragon type that possesses an age category).
Dragon Magic, after saying you have to find a true dragon to make the pact with, says "true dragon (a creature of the dragon type with 12 age categories)"
Draconomicon, in the sidebar on page 4 that defines true dragons for the rest of the book, says "True dragons are those creatures that become more powerful as they grow older."
So a True Dragon is a Creature of the Dragon type that gets more powerful as it gets older and has 12 age categories. That's it. Clean, precise, and with no contradictions or rules made up out of nowhere.
JaronK