Oh, it's true.
Exhibit A: When Kid is wounded, you must trek to the Hydra Marshes to get some Hydra Humour. When you get there, there's a whole group of dwarves that get all up in your grill, just because you're human. There's no calm discussion of your plight... no avoidance of conflict... they mumble about how you're destroying the planet and then proceed with a totally unwarranted attack.
OK, so you've wiped out the HiHo Chorus, and the Dwarf Chieftain spouts off about how evil you are, then he runs away and summons the Hydra. The Hydra rolls up on you, again forcing your hand. You kill it, and the forest along with it. The chieftain calls you a freak of evolution, then hightails it out of the forest.
Of course, none of this is your fault. If it weren't for Lynx, a demi-human, you wouldn't be in that situation anyway. And I'm sure some kind of deal could have been brokered to get some Hydra Humour another way. But those prejudiced dwarves and their shoot first, ask questions later mentality don't care about that.
Exhibit B: Fast forward to your pursuit of Viper and Lynx. You need help to get through the bowels of Mount Pyre, so you head over to the Water Dragon's Isle. The fairies there have been slaughtered by... guess who? The dwarves. First they blame you for forcing them out of their habitat, then they attribute their recent bloodthirst to lessons they've learned from you. Right.
So you kick their asses, wreck their pansy-ass tank, help out the fairy Rosetta, and then get the Water Dragon's help. And what do you have to show for it? The fairies demand that you leave the island - they think it was your fault for the dwarf invasion! What's up with that?
There's also a dwarf that attacks you because it won't share its treasure. The treasure? A scaley dress, wearable only by females, which is useless to the dwarf anyway. The only dwarf worth a damn is the one at the bar in Guldove, because he gives you the Green Tinkler (which you don't really need anyway). The rest of them are just a bunch of assholes.