The combat of this mode is very, VERY strange.
EVERY soldier of my fortress has severed motor nerves.
A dagger cut in two a dog.
A dog ripped out the upper body of a goblin (0.0)
And a lot of things more.
Uninstalling mod.... *DERP*
As zach said above, daggers in Dwarf Fortress are not what you're probably thinking a dagger is in real life. Df daggers are bigger, and against a completely unarmored dog it is entirely plausible to slice it in two. Sharp object>flesh. Dogs have a mouth full of teeth and a powerful jaw. When they latch onto something fleshy you can expect them to rip it apart. Useless against armored foes though, if they happen to bite the armored part. Goblins are not known for being heavily armored, and they are small creatures.
What part of your dwarves was injured to get the motor nerve damage? The motor nerve damage is related to what part got injured. So if a soldier gets it's arm mangled, the arm might have motor nerve damage which would make it hard for it to grasp things.
Sounds like combat is working as intended. I don't see how any of that would be an issue. You kind of want creatures to be sliced in two and have your dogs tear of unarmored creatures, wouldn't you? I know I would!
To help prevent motor nerve damage, equip your soldiers in full metal armor. I looked over some combat reports from a white tigerman with a bronze zweihander against my steel clad spear squad. His attacks were deflected off of boots and gauntlets before they bashed his arms with their shields and broke both so he couldn't defend himself. On the other hand, one on a giant moth flanked around to my crossbow squad and had a field day with them. They only had leather armor at the time and he was slicing parts off. Oops. The few that survived had some kind of motor nerve damage on the mangled parts. One of them is currently trying to pick up a soap bar to put it in a stockpile. He's been trying to do it for months. He has one arm and it's horribly damaged. Poor guy.