Initially, in King's Bounty, there was only one dragon. And having an army consisting solely of dragons for complete victory was impossible, at least for the final battle, as there simply weren't enough of them. In the first game, dragons were also rare, only appearing in occasional scenarios like Dragon Pass.
It's unclear why the azure dragon doesn't fit in, while the fire dragon does. And is a cyclops that throws creatures around also historically accurate? Explain that from a physics perspective. They'll come up with something and incorporate it into the lore. It would be better if they just didn't invent anything.
6-7 castles with one well-thought-out upgrade each is the optimal number. It's not necessarily true that a game is more interesting with 200 different types of units than one with 100, or even 50.