"thank you for the kind words"

Do others have the same negative reaction I do, or is this an accepted convention that I am misinterpreting due to lack of familiarity?

No, this phrasing is not negative or dismissive. Saying, "thank you for the kind words" is very sincere and expresses an honest thanks.

Garner's Modern American Usage (Third Edition) has the following suggestion:

"Thank you" remains the best, most serviceable phrase, despite various attempts to embellish it or truncate it: "thanking you in advance" (presumptuous and possibly insulting), "thank you very much" (with a trailer of surplusage), "thanks" (useful on informal occasions), "many thanks" (informal but emphatic), *"much thanks" (archaic and increasingly unidiomatic), *"thanks much" (confusing the noun with the verb), and *"thanx" (unacceptably cutesy).

*is used to show what Garner believes are inferior forms.

I could see "thank you for the kinds words" being a way to add specificity to the sentiment, and the phrase could communicate heartfelt thanks. Still, it reminds me of a Hallmark sympathy card. Without knowing the context or the tone with which it's said, it sounds either affected or stiff.

If someone said that in reply to what I had said,I would be pleased that what i had said was thought by them to be useful and appreciated etc. If someone didn't say it in reply to what I had said,I would feel that what i had said was not useful or appreciated etc. and that the person was rude and ungrateful.

I hope that what I have said is helpful to you because I'm afraid that I didn't quite understand a couple of your questions.

:)