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I think it might actually have been an episode of Captain N. Will watch "Trojan Dragon" and then update.
Not dragons, but Loch Ness Monsters could come close. We’re the characters My Little Pony G1 esqe? Try searching for the cartoon Happy Ness: The Secret of the Loch , and find the episode “Money can’t buy Happy-Ness” It’s on You Tube. That sounds exactly like it!
It’s part of a compilation on You Tube, I should mention. Just type in Happy Ness: The Secret of the Loch and when you see a bunch of cartoon characters who look like the ones you described, it should be part of the episode compilation that somebody posted for the VHS.
I saw this on VHS sometime in the 90s, but I'm pretty sure it was older than that. It was either a direct-to-video miniseries or some obscure cartoon about dragons with a very 80s-esque opening, and the episode I saw/remember was a take on the Trojan Horse where this really vain dragon allowed the other dragons to send her a wooden sculpture of herself, but when she allowed it to pass through the doors, the face changed to the other characters. It had a moral about vanity, I guess.
Is this ringing any bells for anyone?