Sounds suspicious to me. Food grade DE is used in many pet products including in food. Pool grade is treated with heat so it's not acceptable for use as an ingredient in food, but I can't imagine why it would be dangerous for a pet. Certainly if the dog is breathing in the dust from a package then the risk is probably the same as for a human, but once it's backwashed into say a lawn, there really isn't a dust issue.

I think he was talking about them eating it if it went into the lawn. Ever hear of that?

My dog has no interest in the stuff. If it smelled like bacon then I'd be concerned, but it has no smell.

I think the filter grade DE would be harmfull if you added it to their food, but it generally spreads out pretty good during backwashing, I wouldnt be conearned.
If you are concearned then you can add a seperation tank onto your backwash. This catches all of the de, to be disposed of in a trashcan.

Wow, we need to make consumer decisions easier. From all the research I've done DE cleans the water better than any other option. The only reason not used in all cases is large pool or work required to maintain it. Large pools are dirty and not suggested to keep them like we want for our private pools. The health issues are total crap. It's like saying don't drink the floriated water and let the kids eat all the sugar they want.