Actually, dressage is a lot more like western riding than it is like hunt seat. The position is more or less the same, more upright and with longer legs. Elementary dressage, which is what we always did, just aims to make a horse more balanced and use its body in a better way. There's even a new discipline, western dressage, in which they have dressage tests for western riders. I think it's a bit like reining but not as active and hard on a horse's legs. Here's a horse & rider pair that are probably the best at this discipline of anyone, to give you an idea.
Cowboy Dressage at the Opening Ceremony WEG 2010 - YouTube Of course, they are top-level, and not everyone does such fancy moves, but I thought you'd like to see the best if you just want an idea.
As for Penny's unsoundness, yes, I know not to do small circles. I do 20-meter circles at a walk, though, and that helps Penny get her body together because of the bending. A 20 m circle is about like a longe circle.
The trails at the barn are all hilly, though there are flat places after we climb out of the small valley. Walking on hills, especially uphill, is a good way to condition a horse w/o the pounding of faster gaits. The trails are pretty smooth. Some are mowed paths on grass at the edge of the farm fields, and the ones in the woods are pretty good except for the occasional roots or muddy spots. I ride at a walk for about an hour 2 or 3 times a week.
Yes, I think I'll know when I have to fully retire Penny, and it's not yet, but it's getting close enough that I'm thinking about it and preparing my mind for the eventuality.