Interesting article in PNAS, Molecular origins of rapid and continuous morphological evolution, of which Science News has a good summation. The low-down is that tandem repeat mutations might be crucial in reshaping the morphology of the domestic dog. The Science News article points out that a common conception of dog breeding is that the morphological variation of breeds emerges out of the genetic background of dogs themselves, that is, the ancient ur-canids possessed enough genetic diversity to give rise to the Chihuahua and the Great Dane. These findings instead suggest that a high mutational rate on functional locii is driving the morphological changes of various dog breeds. Wolves and other canids do not diversify into such varied forms probably because functional constraints purify these mutations out of the population. As some have noted, humans, like dogs, also evince a great deal of morphological diversity. It seems plausible that with the rise of culture and diverse lifestyles that humans also removed functional constraints from their morphology, allowing sexual and environmental adaptation work with the mutations that might normally have been been purified.

Addendum: This paper on dog phylogeny offers an interesting point:

Six of 12 ancient Latin American haplotypes are grouped in clade a and include sequences found in dog remains from Bolivia, Peru, and Mexico...No sequences from clade a have been found in samples from over 350 modern dogs (17). The upper bound of a 95% confidence limit for the frequency that sequences from clade a could have in this modern sample and be missed (an observed frequency of zero) is 1.0% (24). Consequently, the absence of clade a sequences from modern dogs suggests an extensive replacement of native American dogs by those introduced by Europeans...genetic analysis of a diverse sample of 19 Mexican hairless dogs (xoloitzcunitle), a distinct ancient breed that has been present in Mexico for over 2000 years (25), only revealed mtDNA sequences previously observed in dogs of Eurasian origin (26). The absence of ancient North and South American dog haplotypes from a large diversity of modern breeds, including the Mexican hairless, illustrates the considerable impact that invading Europeans had on native cultures.

This reiterates the divergence between morphology and ancestry, the morphology of the Mexican hairless dog remains despite the fact that the neutral markers seem to have been replaced by admixture with Eurasian lineages.