Bilbo enters the side door after Thorin gives a rousing speech about Bilbo finally earning his Reward. Of course Bilbo takes exception to this since he had previously rescued the entire company. Twice. But Bilbo enters anyways but not before some hesitation. Tolkien says Bilbo’s greatest battle was in the tunnel alone, deciding whether or not to go on. Isn’t that true for all of us? He comes upon Smaug the dragon sleeping. He steals a cup to give something to show the dwarves. But Bilbo sees the vast horde of treasure that the dragon is guarding and begins to lust after it. The dragon sickness has begun, that sickness caused by the dragon that makes those around him think like him: greedy for things and jealous if anyone else gets them.
After the dragon rages at having a cup stolen from him, and a mild bit of bickering between the dwarves and Bilbo, Bilbo himself offers to go back inside to the dragon, using his ring to try to come up with some plan about what to do about Smaug. Bilbo sneaks in but Smaug can smell him, and a poetic conversation ensues. Bilbo attempts to flatter the dragon with ridiculous and funny names, and Smaug is only mildly impressed. Smaug questions Bilbo trying to figure out who or what he is, since he’s never smelled a hobbit before. As the conversation continues and Bilbo hasn’t been roasted to bits, his own pride gets in the way and he incidentally reveals where he had been. Smaug makes the connection to Lake-town and vows to destroy them. With that pretense out of the way Smaug begins to attempt to drive a wedge between Bilbo and the dwarves, suggesting nasty thoughts about the dwarves’ true intentions with Bilbo. Smaug brings up legitimate questions and concerns that cause Bilbo to doubt the sincerity of the dwarves and Smaug twists those issues to impugn to character of the dwarves. Those who are evil will do anything to corrupt others. Bilbo is able though, to get Smaug to reveal a weak spot he has underneath his belly, by once again flattering Smaug with praises of his gem encrusted waistcoat. Smaug the ever prideful consents willingly and without suspicion, and this will eventually lead to his downfall. Bilbo flees back up the tunnel, but not before a final retort, which arouses the fire of Smaug, singeing the backside of Bilbo pretty badly. The whole conversation between the two characters contains immense displays of arrogant pride. Every time it is displayed, some consequences arise. Bilbo gives himself the name barrel-rider. Smaug figures out that Bilbo had help from Lake-Town and decimates it in the next chapter. Smaug is flattered by Bilbo’s remarks about his underbelly and shows Bilbo, revealing the one weak spot in his armor, which of course leads to an arrow piercing his underside and killing him. And finally Bilbo, makes a parting shot as he’s going up the tunnel, which angers the dragon, causing Bilbo to be singed on his backside. Pride always has consequences.
So does lust after things. When Bilbo escapes safely again, and the company is forced into the mountain to avoid being destroyed by Smaug as he flies around outside, Thorin remembers the things in the horde and dwells long upon the Arkenstone, the Heart of the Mountain. While Bilbo is able to shake off the lust of the horde by being more concerned with staying alive, Thorin will struggle mightily against the dragon sickness.