One way to test your 3d Engine is to go to
http://www.fileplanet.com and download the AquaMark 3d test program. Its free and it will run through a series of tests. If at any time it freezes completely you may have a problem with your vid card.
You mentioned that you get stomped by a dragon etc.. do you actually see it happen or does it chop.. and hten you are dead instantly?
If you still see your character moving around when your mouse and keyboard stop then its not your game freezing.