From what I can tell, the dog in the picture in that article really was used as live bait. So that much at least is true. Here’s a follow-up to that case.
I found a lot more talk about how people are commonly using dogs and cats as live bait on Reunion (despite it being illegal), but the only actual incident I saw reported was the one above. All of the reports seem to come from one of two sources, the article in The Sun, and another article apparently from Yahoo that claims to be getting its information from the Reunion newspaper Clicanoo. The Yahoo article doesn’t seem to be available any more, but I found a number of other sites copying it.
The closest I could find to anything official on it being common practice there was the following quotation, which appeared on a number of web sites: “We don’t see that every day, but it’s not the first time, either,” Marie-Annick Chantrel, the vice-president of the Reunion branch of the SPA, told Clicanoo. “We’ve already seen cats six or seven months old with hooks in them.”
More on the practice of using dogs for bait can be found at this site, along with pictures of several other dogs apparently used for the same purpose. And here is some more from that same web site.
I couldn’t get the RSPCA site to work (it said that the page was down for maintenance), so I can’t tell whether or not there really is a petition. I’ve seen a lot of sites where people claim to have signed it, though.