What level do I have to be to kill him? Any tips on how to go about doing it?

The Megadragon is the hardest monster in the game so it's best to fight him shortly before the game ends.
But if you want a challenge you can defeat him at level 100 or even earlier and even in a Darkside only game.

The Megadragon has 90% damage resistance, the Xeen Slayer Sword ignores damage resistance so it's x10 versus Megadragons. You can trade it during the fight if you want to be cheesy, if not weapons of dragon slaying do triple damage.

The dragon has 64k HP, the mass distortion spell halfs HP, cast it several times with cleric and paladin. Dragon sleep spell works sometimes.

Preparation doesn't hurt either, at the dragon clouds there's a well which grants 50 levels temporarily, use it and cast day of protection and day of sorcery afterwards, if you have items which casts those spells have your highest level character use them. The dragon attacks with energy so use a location which raises energy resistance too. And get your stats raised temporarily, might allows doing more damage, luck reduces the chance to get eradicated instantly if you take damage, ..., there are locations which offer extra HP and SP, ....
Start your buffing in the morning so you have plenty of time to visit all beneficial location and fight before the day expires.
Start the fight in melee (use jump or teleport if needed) since the dragon has a better ranged attack than your party.

Cool thanks, I'll give it a try.

I've taken the instant level ups as I found them. I can get to level 100 with all the money I have in bank, but I'm staying at 50 for the moment, since I want the money to keep gaining interest. I might use a bit of cheese (duplicate spell, mine smiths' plate armors) to get more money, but not too much. Hopefully around level 120 + 50 from wells should be enough...

Just found out there is not Duplication in World of Xeen. That's one less cheesy way of making money.

Defeated him (fairly easily, but... see below) with the following:

Barbarian, Paladin, Robber, Druid, Cleric, Sorceror

Level 125 each.

Using the following pre-battle buffs:
_+15 levels
_+50 AC
_+ 2500 HP
_+ 100 Might
_+ 100 Luck (important for lowering chance of eradication)
_+ 150 Energy resistance (visit 50 Energy resistance fountain first, then the 100 elemental resistance)
_Day of Protection
_Day of Sorcery

Didn't use Sword of Xeen... felt it was a bit cheesy
Didn't use Mass distortion. It's not as effective as I thought it would be. While the base damage is half the hitpoints, the dragon's resistance applied after that, which meant that overall damage was lower than hitting it with a weapon, especially for my paladin.

It was just simple hitting. With all 6 chars alive I was doing around 2300 damage per round.

Initially my goal was to kill the dragon without anyone being eradicated. Turned out to be almost impossible at this level. So I just settled for killing him and using temples to resurrect the ones who didn't make it. In the end 4 or 5 characters will be eradicated. Still had to reload a few times. A lot depends on how long your characters can survive before they're put out of action.

I suppose it might have been better if I waited for higher levels and the + 50 level fountain, but I think this is good enough. Other improvements I could have tried:
_Accuracy fountain (not sure how much that would have helped).
_Dragon slayer wepons.
_Better micromanagement of items. Example: some of my characters went over 250 might, so their might items could have been given to someone else. I could have bought more energy saving items (if you're not damaged, you can't get eradicated).

Aaaarrgghhh. Apparently eradicated members don't get XP. So all 100 Million went to my one survinving barbarian.

Not that it really matters at this stage...