The only restrication we have from that is that we only draw dragon characters when the dragon expansion is played, as they tend to be more powerful than the others (I know it's not true for all of them but we handle them as a group).
That's kind of odd, as most of the characters are weaker when not used in combination with the Dragon expansion. Abilities that are directly related to dragons or breath attacks see much less light of day when not used in combination with the Dragon expansion.
The Minotaur and Conjurer are standard characters and I cannot see why you cannot mix them freely with the others. They're powerful, but that has nothing to do with Dragons or scales.
The Dragon Hunter and Fire Wizard are exceedingly powerful when there are many Dragons and scales around, but are quite solid in any game of Talisman. Deathblow works in every battle and so does the pyroblast. Fire Wizard has an in-built Spellbook as well.
Dragon Rider and Dragon Priestess, as I've already said, have mostly abilities that pivot on Dragons. With less than 20 Dragons dispersed in a huge Adventure deck and in other Region decks, your chances to encounter them and put the abilities to good use are tiny. The Priestess can focus on the Temple, but without many Cultists to get as free bonuses (they're more common in the Dragon decks) she can only hope to get as many Followers as possible. The Dragon Rider, on the other hand, is a character that has a permanent Holy Lance that must look for a Dragon to get a real chance. Otherwise, she's a good-aligned Str 3 Cft 4 character with 3 fate and no abilities.
There are very few characters I do not like to play: Dread Knight and Elf. I think their design forces them into static and predictable strategies. The Elf may get some more options with the Woodland though, as there MUST be some extra Woods spaces inside.
Can't say I have much against the Dread Knight but I don't really like him either.
The elf on the other hand is my absolute least favorite character and I've thought the exact same about the woodlands.. there better be a handful of Woods in there
The Dread Knight's problem is the following: he has a Warhorse he can lose pretty easily, he has a second ability which works only if he's strong, if he kills Enemies and if he gains some Craft as well (or he won't be able to gain more Spells), and has only 1 fate.
I can't understand why the designer thought he would need only 1 fate. He should have at least 2. He needs fate not only to be safe from the occasional Talismonger, Luck Fairy or similar, but also to save himself for the not-so-powerful Craft Enemy who will make him lose the Warhorse. Usually he ends up losing the Warhorse, then spends a lot of time travelling back to the Graveyard to regain both the Warhorse and fate. This procedure consumes a lot of time and it's very predictable. In my last game with Dread Knight my opponent waited until I landed on the Graveyard to cast Mesmerism on me and steal the Warhorse again. If you give up the Warhorse and stop trying to reach the Graveyard, you'll be a Str 2 / Cft 3 character with 1 fate and the only ability to gain 1 Spell if you're so lucky to defeat an Enemy. I can't see any meaningful strategy to get out of that bad situation, you can just keep drawing and see if the game kills you or makes you survive.
The Elf was ok with the base game, where he had good chances to draw a Magic Stream or Fountain of Wisdom, but now there are so many negative/useless Strangers and Places that can clog the Woods in the Outer Region; if that happens, your Elf must get out and he's a character without abilities. The ability to Evade in the Woods keeps you safe from hostile characters, but if you draw a powerful Enemy then the Woods space becomes taboo until you're ready to face it or someone else does it for you. If you draw an Object you can't carry or take, you must leave it on the Woods and it shuts down the space as well; other characters can even do this on purpose. In the Woods you always draw 1 card only, so you're not able to push your luck like you do on a Ruins/Hidden Valley or in the Dungeon or Highland. In my opinion, this strategy is very predictable and very slow, so you will be forced to abandon it sooner or later. At least the Elf has solid stats and fate, as opposed to the Dread Knight.
If the Woodland has many Woods spaces, he can find a new place to exploit his ability. I don't think Terrain Cards could increase the opportunities for the Elf: only Verdant Growth and Seeds of Paradise place a Woods Terrain Card; Terramorph is random and thus not reliable.