That model is a character riding a dragon. The mount is not being proxied since its a dragon so it's ok to field it on its original base.
With regards to if proxy models must be on correct base size... I don't know if it even makes sense to talk about legal base size when proxying. It's not really legal in the rules to proxy, so if you field an ogre or manticore as a dragon, then its gentlemans agreement with the opponent in any case. If you proxy your army, likely some of those modelled are borrowed too, so you dont want to re-base your friends miniatures anyway. But maybe there are some spare bases to place them on top of to simulate the base of what you proxy. I guess if you proxy models the whole idea is to get as close to the original model as possible in order to evaluate if you want to buy it for your army.
Personally some of my models are many editions old, and I would certanly not want to re-base any of my models. I think it's an important principle that you can buy your model, paint it, base it, seal it and consider it done. Even if GW release new version of the model, your finished model can still be used.
I also have the old nagash. But he is too ugly to re-use even though his base is smaller.