Half-dragon is a template, so adding the half-dragon template to human for example, would normally be LA +3...so for our game a level 4 paladin half-gold dragon human would effectively be 7th level according to normal 3.5 rules.  However, I'm saying said character is only 4th level; but suffers a 15% penalty to all XP awards.<br/><br/>I've personally seen more damage done by skilled players, rather than specific races or templates.  While yes, a more powerful race can potentially upset the balance to a game, said balance can just easily be adjusted by modifying encounters rather than penalizing a player for using templates or unusual races by making them sacrifice class levels in order to use them.