A: Technically, we never intended for Action cards to be played on top of the Silver Dragon, however, some people do choose to play that way.
See: In Seven Dragons, can we put the discard pile on top of the Silver Dragon to easily see what color it is?

Whichever way you choose to play, the Rainbow Dragon is a panel card and not an Action, and as such, can be played anywhere a panel card can be played – which does NOT include the discard pile, wherever you happen to be keeping it. Note that we used to have a Shuffle Hands promo card (it was a peel-off postcard type) which was an Action that changed the Silver Dragon back to wild, but, unfortunately, we are all out of that.