I am an aspiring author illustrator. My question is: for a first timer, how finished does the dummy have to be? I would expect more than thumbnails, but how close to the finished product does it have to be? Also, is it ever acceptable to send the manuscript alone and mention the illustration aspect only after a publisher expresses interest? Thanks.Certainly it would be fine to send the manuscript alone-- if you're willing for the publisher to choose a different illustrator.
You cannot count on the publisher expressing interest before the editor has done the work of acquiring the manuscript, which often involves discussing a possible illustration style. If you're unwilling to have anyone else illustrate, the editor will be very irked indeed to discover it at this stage.
The dummy should have complete sketches and at least a couple pieces of finished art--all of which you would expect to adapt with feedback from your publisher.