If I recall correctly, the Dragons had something to do with the death of the Divine One, and therefore are being hunted by the Dragon Slayers. The Player Character gets 'cursed' and can transform into a Dragon. It's a curse because Dragons are hunted in Rivellon and changing into a dragon where others can see you will make you hated among the population.

As Myrthos said, and as visible in the Leipzig Presentation, the blue eyes are an aspect of the Dragon Slayers. In the video, you can see Lar doing the quest to be able to see ghosts, and a spell is cast upon the player, giving him those special eyes.

Maybe there are multiple types of dragons? The old and wise dragons like the Patriarch from Divine Divinity and the mindless monsters. My general view of dragons is that they start as dumb hatchlings, and as they grow and age, they gain more knowledge and power, so they become ancient and wise dragons.

[Linked Image from miniprofile.xfire.com]