Whilst T-bagging stormcloaks, I attempt to kill thier Officer, I leave and return and then, fast travel back AND A CRAPPY QUAILTY FROST DRAGON POPS OUT OF NO WHERE AND I GET FREE GOLD!
How could this Happen!

Maybe its an easter egg. The "crappy quality' could be a tribute to the little dragonish flying reptiles that would show up sometimes in TES 2 DAGGERFALL.

I understand you not.

Maybe it just wanted a cup of T.

The game loads low res textures occasionally, usually on the ground or on dragons.

But how did it suddenly die?

I've had things like hargravens, horses and frostspiders fall from the sky, and the skeleton of the dragons appear far from where they were killed.

Another mystery of the game engine....