Should I take the side of the poor oppressed Duergar, or the racist Genies in the Civil Rights Negotiation?

The ideal choice is almost certainly to side with the Genies in all matters except for the ban on elixirs - those should be completely legalized.

Relaxing the ban on the elixirs does not forfeit your reward for negotiating in the Genies favor if you conduct the rest of the negotiations in the most one-sided manner possible (the last option to every other question), but does allow you to get the Mysterious Potion from the dwarf who asks at what range you can smell his brews. This yields +50 VP to any one character.

The armor reward for siding with the Genies, the Falcon Jodhpurs is the best armor in the game for Balthios - by an equally large margin to the armor the Dwarves award to Barkley - and he needs the extra guard to compensate for his low HP and otherwise weak Guard stat.

Additionally, siding with the Genies grants you a magic lamp and a wish from Kazaam - if you wish for Power, all of your characters will gain +5 to all stats.

By contrast, siding with the Dwarves yields the Shrekimono, the best armor in the game for the Barkleys - however, while Hoopz could certainly use the +10 Guard vs the Mithril Jersey, the +5 from Kazaam combined with the benefit of the Jodhpurs for Balthios and the bonuses to all other stats are clearly the superior choice. Unless, y'know, you've got one of those conscience things. Which you shouldn't. It's every man for himself in the post-cyberpocalypse after all.