No, it doesn't matter if you read the first volume before giving it to the librarian (it just describes the spell used by Amdusias and mentions a warning to always have the second volume handy, which contains the counter-spells, in case something goes wrong).
You can try Hide in Shadows, or whatever the skill is, to get the dragon scale, or just make a mad dash in and back out. For some reason he wasn't hostile in dragon form after the first encounter I had with him, possibly because while I was out doing other things (looting looking for the book) a couple ghosts wandered into the chamber.
You can take the teleporter out to level or get potions, etc, if you need to.