Bilbo looked at the dragon turned man. The man looked back.
"First of all, we need to find you something to wear," he stated, thinking hard. What could possibly be left that was big enough for the dragon?
Said dragon huffed and rolled his eyes, "I cannot think of one reason for me to wear… something other than nothing. I'm not conflicted by your silly problems like… modesty, I think the word was."
Bilbo glared. Somewhere along the last five minutes, he had gotten over himself, "Modesty is very important, thank you very much. I didn't think you would get it though, seeing you've probably spent all your life naked."
"Oh, you're all the same, aren't you? Fine, I know something wearable."

The dragon-man strode in front of Bilbo, only his tale and wings somewhat obscuring his tall, lean body. The redness of the scales was paling rapidly, settling at a very, very light peach, and the dark curls somehow grew just enough to properly cover the horns in his skull. When he turned to see if Bilbo was still following, his eyes had also changed colours, but they did definitely not look like anything Bilbo had ever seen before.
Smaug sighed dramatically, and continued walking. Bilbo then thought that maybe he could take the thing he got here for while Smaug was busy, the Arkenstone.
"You do not need to try,"
"I'm sorry, what?"
Smaug sighed yet again, and turned around, facing Bilbo.
"The Arkenstone is quite safe with me, if you don't remember. You couldn't find it if you tried."

The rest of the walk was somewhat awkward. Bilbo said nothing, and neither did the dragon. The hobbit was preoccupied, trying to look anywhere except the dragon-man's nude back. Even if it was incredibly tempting to stare. Not because it was the first time he saw someone naked, really, but… he lost the train of thoughts at that, not quite knowing why. So he started focusing on the dwarvish architecture. It was soothing to look at the angular shapes, and it held some sort of beauty, that was different from the elves. Very different, but not unwelcome.

They arrived at some sort of great hall. It was decorated with banners of all colours and shapes.
"Can you grab me the purple one?" Smaug asked, looking at the hobbit.
The hobbit frowned at him. Smaug looked back. Finally, Bilbo backed down, grabbing, or trying to grab, the purple banner.
"You know, you're much taller than me." Bilbo said, straining to get the piece of fabric.
"On another thought," Smaug said, opting for completely ignoring the other, "I think I would prefer the red one."
Bilbo scowled as he went to one of the red pieces of fabric. The dragon was straining on his patience, a patience that was wearing thin before he met him. Luckily, the red one was within his reach, and he did manage to pull it down.
"Hope you're happy," he said as he dragged the fabric across the floor. Smaug looked at him, possibly approving of his efforts, then he took the red sheet of heavy fabric and wrapped himself up properly. That took two tries. Then Bilbo gave him a pin to fasten his sheet, but Smaug just scoffed and walked off.

"Hey, hey–"
Smaug looked back at him with an arched eyebrow.
"– shouldn't I be in the lead?"
Smaug halted, looking amused. "If you haven't forgotten, I'm a dragon. I can smell my way to the dwarves."
Nonetheless, he let Bilbo lead the way back out of the mountain.

When Bilbo said that he would be Smaug's friend, he hadn't known of the potential… jealousy that would follow. He had been aware, to some extent, of Thorin's… infatuation, he supposed, but they were both men, were they not? It was not unheard of, of course, but he stubbornly told himself that he was not like that.
Now, of course, Smaug was deducing all he could from the travellers, leering off at the speed of thought.
It was sort of embarrassing, the way he told their life histories from a quick glance. And most of them were either furiously denying it, or too embarrassed to say much. And that in itself was impressive, to silence the stubborn dwarves with words only.

Thorin was dumbfounded to say the least, and Smaug hadn't yet deduced him, but the way he had told more about the other dwarves' lives than he had already known himself, scared him. It was the sort of knowledge no man except himself and his closest should have privy to, and now the strange man Bilbo had brought back was talking like he was Manwë himself, all-knowing.
"So, tell me, Bilbo, where did you find this strange man?"
Bilbo wet his lips and looked up at Thorin, "Trapped. Trapped in the lair. Of Smaug, I mean."
Before Thorin could say anymore, Smaug turned to him.

"You must be the leader of this group, driven by the sheer want for the home you once had, maybe because of the gold as well." He started, his deep voice filling the air and would-be uncomfortable silence, "Many hours on the road, unfortunate run in with goblins, orcs… your arch-nemesis?"
The way Thorin clenched his teeth at that, confirming it to Smaug.
"You care deeply for all your companions, they're like family, but it is distinctively different with Bilbo, perhaps–"
A fist to the stomach promptly shut him up.

Bilbo looked between Smaug, utterly put off, and Thorin, looking homicidal. This was going to be difficult. Very difficult.

Smaug was sitting very close to the fire, Bilbo was seated beside him, and Thorin was sulking near the mountain wall. The silence was near suffocating, even if Bilbo had spent at least an hour apologizing for Smaug's behaviour. All of them were now purely ignoring the dragon, except for Bilbo, who was practically used for a pillow, and Thorin, who obviously did not like Smaug. Even so, they had to bring Smaug back to Esgaroth, how else would he be reunited with the humans he was kidnapped from?

Of course, no one, except Bilbo, knew that he was in fact a dreaded dragon.