Quote from the 1E Dungeon Master's Guide by E. Gary Gygax: "Inform those players who have opted for the magic-user profession that they have just completed a course of apprenticeship with a master who was of unthinkably high level (at least 6th!)."
It is thus parenthetically established that 6th level is unthinkably high compared to the abilities of a commoner, should so it should be a sufficient limit for the first installment of BG III, as there is little difference between 1E and 5E at 6th level. Or at least, ahh, I don't know of any significant differences. There could be something I missed. Missed ... mist ... by Leira's heart, I am not sure of anything anymore.
Regarding kobolds versus dragons, we should note that a dragon's difficulty level scales with its age. It is quite possible for a party of 1st-3rd level characters to succeed in an encounter with a very young dragon. I am surprised this has not been done before in the BG series. In fact, there was a chapter in the Great Book of the Unknowing that I read concerning a young dragon ... er, well, maybe there wasn't. I don't know.