He sounds like a biter too.
A muzzle may be too little too late. It was trained and trained and trained to chase small objects over and above it's instinctual predilection to chase things.
If the small dog was in the area supposedly restricted to large dogs you may dodge the bullet. After all they try to segregate the walking meals from the real dogs. Did your dog approach the little one? What precipitated the first nip from the little one? Ws it a final realization that it might be history, like the mouse flipping of the owl, or in more likely an attempt to protect itself.
The people here at the local Greyhound Rescue Group that adopt out the hounds stress that they aare unpredictable. In fact in general, ANY DOG THAT IS "RESCUED" is pretty unpredictable. You have no idea why it was given up, you don't know how and why or what it was trained for, or what behaviours were inculcated. Although with greyhounds you do know they were trained for racing (trying to catch a small prey) you don't what methods were used. I have some experience, I have two now and previously another rescued Basset Hounds. The first was an almost perfect dog for kids, would take poking prodding ear and tail pulling. Was used for show and tell at school by all three sons. However she was crap at being a guard dog except for possums in the backyard. People NO, she loved everybody, in fact we never saw her bark at people, and only raised her hackles a bit once.
The two I have now, we ended up getting from two rescue sources about a month after the first died suddenly. Both are good dogs but are neither overly well adjusted. It's been about 4 years now and neither is alfa dog, and they will occasionally fight over food they have purloined by opening cupboards the boys haven't fully closed (earthquake locks), fruit, especially bananas and canteloupes they have been able to get off the counter (yeah they eat canteloupes and bananas) or by knocking down the trash the boys haven't taken out. You haven't lived until you've come home and found that the girls have found a five pound bag of flour and dragged it all over the house trying to get it away from the other. Flour and bassett slobber.
One is neurotic, has separation anxiety if the wife is out of her sight for more than 5 minutes. And she will run out the front door. But she hated going for walks and in the car, used to quiver and shake and mosn in the car. And when walking dragged her nose, ears and tail. You ever see any other hound that wouldn't hold it's tail up when walking? Is great with people and will jump up on the couchj with you but not in anybodies lap.
The other was starved, and apparently physically disciplined. When we got her she was about 15% under her optimum weight. She would lunge and attach over anything she thought was food. Now that she is up to weight and not hungry all the time she is better about food and she won't try to take it away from people, although if you hold it where she can get it she'll take it by stealth. She had to be taught to jump. If she saw the other dog get up on the couch or bed or ??? she would come over and bark at her. She would come over and get us and bark to rat her "sister" out. She even will bark at people who get up on things she thinks they shouldn't. She accepts attention from kids but not too much annoyance, and then she snaps and hits with the side of her nose like correcting puppies. We can leave the front door wide open and she will stay inside even if we call her, until she has her leash or we pick her leash up. She loves to go for walks and in the car. She won't lick anybody unless they have some food spatter or similar, she won't give you "kissies" even if you
ve got something lickable on your face. She'll sniff but won't lick a persons face. In other words there are some behaviours that are normal in dogs that she avoids like the plague or had to be taught. But she is purely delighted to get in somebodys lap and just relax. But then she will not get down until she is ready, and will let you know that she isn't happy about it. My wife and I can pick her up to move her the boys can't.
The Basset Rescue folks are pretty straight forward that rescue dogs can have some latent timebombs hidden depending on their background. And you know that if a Basset can be made to be dangerous, what about a dog from a breed that has more aggressive tendencies?
I'm not blanket saying don't trust "rescued" dogs but be prepared. We've had Samantha for about 5 years now and every so often she does something out of character for bassets.