It is first worth noting that Rabbi Yehonatan of Lunel does not say what is quoted in the question. There is nothing about wings and belching smoke and fire. The English translation of Rabbi Steinsaltz's original lecture in Hebrew either mistranslated, embellished or Rabbi Steinsaltz misquoted Rabbi Yehonatan.
Rabbi Yehonatan's commentary is from a single existing manuscript copy as stated in the printed edition.
His comment is on Avodah Zarah 42b concerning Mishnah Avodah Zarah 3:3.
צורת דירקון: צורת נחש שרף מעופף, והכי תני בבריתא אי זהו צורת דירקון פירש ר׳ שמעון בן אלעזר כל שיש לו ציצין בין פירקי צואר כסנפרין
שטרח בהם אבל בלא ציצין לא מיתסר דלא נעשה לשום ע״ז אלא לנוי בעלמא
The form of a dirakon: The form of a hooded (or lidded, as in eye lids, like מעפעפי) venomous snake. Thus, we learn in the Baraita, "If it is the form of a dirakon, Rabbi Shimon ben Elazar explains, 'All (snakes) that have blossoms (like the petals of a flower) between the neck joints like fins, which it (meaning the snake) prepares to strike (meaning to bite) with them. But (if the image of the snake is) without the blossoms, it isn't restricted. That it (meaning such an image) isn't made for idol worship, rather for worldly ornamentation.
The Baraita which Rabbi Yehonatan is quoting is the Tosefta to Avodah Zarah, 6:1.
It is also worth pointing out that the specific type of avodah zarah described can still be seen in the world among both the Yazidi people in Iraq and among the Hindus. Like is seen here:
According to Natan Slifkin in his book Sacred Monsters, Chapter 12, quoting Avodah Zarah Yerushalmi to 19a and also the commentary Tiferet Yisrael of Rabbi Yisroel Lifschitz to Mishnah Avodah Zarah 3:3, the drakon mentioned is referring to the variety of venomous snake known as cobra.
They look like this:
He also points out that Bartenura on that Mishnah is describing a snake with finlike structures. The Yerushalmi cited above says the fins emerge from the neck of the snake.