I actually think Dusty has done a pretty good job with this Reds club. He may not be more "old school" than many like, but I also think he has overseen the club as they have gone from afterthoughts to contenders.
That said I would hesitate to give him an extension until at least late August. The last think I would want to happen is to extend Dusty for another 3 years only to see the team tank down the stretch. I remember Narron and Boone both got extensions way too early and the Reds were stuck eating their respective contracts.
I would hope for a 2 year max extension and wouldn't want to go any further than that. I don't want to see anything similar to what SD did. While I think a manager often gets too much blame (and credit if you will) I do think there are times when the situation becomes stale and new blood is needed. If the Reds end up 10+ games over .500 this season I wouldn't have an issue with Dusty being the manager through the 2012 season. Anything longer than that would be a mistake.