With dragon it was actually play-tested, and the burn pile was originally set at 2x the number of curses. At that many, someone could just spam 3 or 4 dragons and quickly swamp the opponent with burns faster than they could return them to the supply. 8 is a good number because:
1) It limits the spaminess of dragons
2) If there is trashing, you can reasonably trash most of the burns to turn dragon into a dead cantrip.
I prefer 8 to 10 because it gives an even number of plays of dragon, so theoretically if both players had a large deck and then started on dragon, although in practice this isn't a huge issue because burns are constantly being returned to the supply. As for them being in the supply/not being in the supply, well, you aren't really ever going to want to be buying them. The only thing is whether or not they count towards 3-piling; most cursers cause curses to 3-pile in a lot of games, so why not another junking attack?
As for prototype, while it isn't playtested yet, i'm not sure it is that wildly overpowered; unless you are trashed down, you are going to have trouble lining up prototypes. I also don't think it is that overpowered compared to, say, menagerie. And about the $3 or $4 cost; isn't most of that whether or not you want a player to be able to open double-x? I can't see any issue with double prototype opening.