That Which Sleeps is a turn based strategy game in which the player takes on the role of an awakened evil from the world's past and must manipulate a living, reactive world from the shadows using a variety of corrupted agents as well as what armies he can muster to his cause. Players must balance an aggressive approach utilizing his considerable powers with the need for secrecy - heroes are constantly examining clues left behind by the actions of the old one and eagerly hunting the player's agents. As the time comes to herald your return, the Chosen One will lead what remains of the world to stop you - will you be ready?
So are the Dwarves slow to trust Flayers or "outsiders" as in any other race?
I think he meant that they are literally slow to trust any race other than their own. It's doubtful that they don't trust Flayers specifically, though looking at these Flayers I bet anyone would be slow to trust them.