For the smoke you could use talcum powder. Run a small hose down to the dragon and embed it into his nostrils. Then at the top of the controller attach a small bulb syringe that you can fill with powder. To make him blow smoke you squish the bulb syringe. It won't be a lot and it would be a one time shot.
There is also a product called Lionel smoke fluid that is used by model train builders to generate smoke in toy trains. I've never used it but if you have a model train store in your area you might look into that. I think it is generated with a small heating element. This might give you better smoke and more of it. You would need to modify what ever mechanism that is used in the toy train. I bet you could run it off of batter and run the power lines up to the controller.
Can you use flash paper in Belguim? It is something sold to magicians. They make a small hand held mech that is run by battery and shoots out a ball of fire. I re-worked one and ran the wires up to the controller and put a batter back and switch up on the controller. I used this on my dragon marionette for awhile. It is a one time shoot since you have to load the mech with the flash paper for each use.
Red and yellow silk in strips is often used to represent fire. Not sure how to use it inside the mouth though. Normally you attach the silk in front of a fan and then turn it on. Then you shine a light from behind the fan that is red or yellow also. See this Google Search:
Google Search for examples of what I am talking about.