Diatemaceous earth on dogs

My boyfriend swears by this stuff. He says he puts it on his chihuahua for fleas. Now the dog scratches constantly as if he has a skin allergy.
My toy poodle stayed a few days with him while I was out of town. Now she is scratching constantly like she has food allergies. She slept in the same kennel as his dog (and I think he may have put Diatemaceous earth on her, although I keep forgetting to ask him). She has literally licked her paws raw,and scratches constantly.
I have no idea if the diatemaceous earth he has is food grade or not.
Would any grade of diatemaceous earth cause a skin reaction in small dogs? Or am I barking up the wrong tree?

We switched over fairly recently to diatomaceous earth on our little dog. It seems to work well for fleas, although it needs to be applied pretty frequently (at least weekly or so) or the fleas come back quickly. We have a fair number of animals wandering our neighborhood (cats, possums, squirrels, raccoons...) and they seem to bring fleas with them.

Our dog never had any sort of reaction at all to the DE and doesn't seem to mind it. We apply it by shaking it on her and rubbing it in. She enjoys the attention, and when we're done she shakes herself once and runs off as usual. She's always got some barking, chasing, sniffing, jumping, etc. to do. Definitely no unusual scratching or anything after using DE.

I can refer only to food grade diatomaceous earth, though. That's what I've read you should use, so we do. But I tend to wonder if your dogs haven't come into contact with something other than food grade DE.

Now the dog scratches constantly as if he has a skin allergy.  

DE will dry the skin...it soaks up moisture like a sponge.
Causes a dandruff like condition.
That could be what is causing the scratching.