I think I've read some fantasy books in which the dragons spit acid instead of fire, and at least to me that sounds a thousand times more credible than fire-spitting dragons.
I'm not particularly sure about Tolkien's dragons (dragons are creatures of which I never bother to find anything out as I don't really like them), but were they fire spirits like the balrogs? If yes, I wouldn't question their ability to spit fire nor to have magical powers (just like Gandalf and Sauron, for instance, had) or even "magical fire".
A poisonous acid might explain the dwarves' armours, though. Even if a fire-spitting dragon couldn't melt their armours, the heat would have killed them. It's easier to be safe from acids.
edit: crossed with Leggy and Miggy
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He bit me, and I was not gentle.
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