Hypothesis :

Opponent A wins a challenge with 2 dragons and the response on the dragon is to discard a location with equal or fewer cost than particapting dragons ( 2 in this case )

Opponent B has a location card in play which has a cost of s2 ( shadow location ), Could this location be discarded or would then cost be 4 because of the initial 2 gold paid to put the card into shadows ?

The 2 gold cost to put something into shadows is definately included in the "gold cost" of the card, so a card with "s2" is cost 4.

I just have to nitpick here and say that Viserion's ability is for cost "less than the number of participating characters", whereas Drogon's is STR "equal to or less than…"