While Chase makes a good point that the potential of the Dragon type is extreme, I would actually be more inclined to Axew then Larvitar. Axew, at the least, isn't Psuedo-Legendary with stats like the specs on a 2009 SSC Aero.
Okay, let me stop here and make some ground rules, instead of suggestions. I had hoped that my initial post would make my intent clear of wanting a story driven game without players who only want the most powerful of everything and every legendary in the world. That's not the goal of my game, and if that disappoints you or turns you from the game, I apologize.
Now, as of the moment, I'm going to exclude Malcolm from this as he and I have a fair amount of material working towards a character very fitting for the setting without being part of the setting. Since we've put effort into making something to have a highlight to the area, I'd rather not throw it away, especially since I already have a plot hook around a piece of his story for future use. His starter is not from the region, but is still well within reasonable power of a basic starter. But, for guidelines.....
1 - Characters are from Kanto or Johto.
2 - Starters are from the same region as the character.
3 - The list of automatically available starters: Bulbasaur, Charmander, Squirtle, Chikorita, Cyndaquil, Totodile, Azurill (*), Bellsprout, Caterpie, Cleffa, Elekid, Geodude, Happiny (*), Hoppip, Horsea, Igglybuff, Machop, Magby, Magnemite (***), Mime Jr. (*), Mareep, Nidoran, Oddish, Pidgey, Pichu, Poliwag, Smoochum, Weedle. (**)
* - Though these pokemon weren't introduced until Gen III or IV, I would just hate to ban the cute SoBs when this other huge list of babies is acceptable. Consider this the only availability outside Gen I and II, and only at start of game.
** - Other starters are acceptable, though rare, and will come from Generation I or II, and will be something logical to fit in a backstory. I.e. a farm child with a tauros, a child from the city with a growlithe, or even a kid from the woods with a Natu. These are case by case, and NOT preferred.
*** - It was pointed out to me that Magnemite does have three stages now, much like Magmar and Electabuzz. Final form requirement is fairly absurd to obtain, but it is obtainable!
4 - Characters should be young enough to lack real world experience, but old enough to be out travelling and not get themselves killed every step of the way.
5 - This list is subject to change, yada yada.
6 - Characters will begin at trainer level 1. Though you each have your own minor accolades to recognize you as an official trainer, and even have chosen a path to follow for your career as a trainer, you are not experienced enough to call yourselves "Good."
7 - Starter Pokemon begin at level 8. This is to show that you have had connection to your starter, and worked with him beyond hatching him. Again, though, not experienced enough to be "Good"
8 - This list is still open to modification at any time.
Jeremy: On a side note, the reason I leave Abra off the list is he has no damage moves learned by level up. These would have to be learned as Egg Moves or by TM. Either way, it's painful to start the game with him, and I would not suggest it, but would be open to it with the right class/story.