He was trying to do what you wanted, it was cute.
Your instructor can help you more than I can with extending.. fast is good, but for true extension you really need him to stretch out as opposed to go faster.
If it works, awesome, if not try a Myler. As long as he likes it. Your instructor should be able to suggest a dressage legal bit. I would suggest keeping an eye on his mouth though, you may want some bit guards for a loose ring so it doesn't pinch.
(Did not realize how many different colors those things came in...cool!!)
Well I already said so... :P
Honestly I think pretty much any horse that is not lame or deformed or mental (lol) can do low level of pretty much anything, dressage included/especially (jumping say is a little more strenuous).
I also think that your boy in particular will do just fine. Especially if you have a good instructor. He can do it, and I see no reason why he couldn't do it very well in a relaxed non competitive way (not saying you won't win, but it doesn't sound like your goal is to advance, more to have fun).
I think he would do just fine for a fun lower level competition horse. As anebel said, western dressage is becoming more popular too so that may also be a good alternative too. The biggest thing I see is him being on his forehand, which is a very common challenge and something your instructor will help you with (some horses have more trouble than others, it's all on build). Putting a snaffle on him will let you really push him into the contact and get more control/self carriage (will help with the heaviness) and eventually collection. He is looking good now, I think a snaffle will make a great difference. Push him into your hands and ask him to give.. let him get soft and round and forward.
Just for the record, my friend is doing USDF upper level dressage on her 28 year old QH that looks just like your boy :)
Morgans can do just about anything :)