@vampirehunter: It's an Xmas miracle
Well, I don't think it's possible to explain how such breath weapon could have evolved either but it's still fun to try. If we assume that the system is in place, I think small evolutive steps would eventually push it from the more "bluffing" side to something more deadly. I think t would greatly depend on what kind of fuel is used which would also cover how hot and how damaging the flame is.
Assuming the dragon fuel storage space is the same, a gas of low molecular weight and low density wouldn't produce much energy when burned. If this is used, then the breath weapon is limited to something that will certainly affray other creatures but wouldn't be very damaging and there wouldn't have a lot of room for improvement over time. However, a liquid would be more deadly.
Again, it also depends if the fuel begins to burn in-air (a lot of energy is wasted before it even hits the target) or only after it has hit the target. I'm starting to like the idea of delayed combustion, because in a way, it turns a weapon that does immediate injury to something that breaks moral as well (it goes from "Ouch! You will pay for this!" to "Ewww, oh god no!" *run around for a few seconds before bursting in flame*).
So on that part I think it's more a matter of physics than biology but otherwise, I agree, it would have limits over how many times it could be used and it certainly wouldn't replace claws and teeth.
@Blue Tiger: I can't help it, just love biology and chemistry.
For an acid breath weapon, it wouldn't be as nearly unexplainable. There is always a possibility for the teeth to use a different mineral composition that would be more resistant to acid, but even without anything special the creature could simply renew its teeth more often or cells in the mouth could coat them with some sort of protective layer or the creature could have a saliva with a higher pH to balance to things out.
@Falconer: Usually, there is never any problem when explaining things from a creationist perspective. The real difficulty is when it's time to explain what god is made of, where s/he comes from, who created him/her and how he can do all these things and in the end, the explanation has merely displaced the problem elsewhere. And no, I'm not itching for a creationism vs evolution debate... I'm just pointing out that the discussion wouldn't be about dragons anymore.