First, one must not confuse the developmental arc of physical bodies with the development of souls. Physical bodies evolve or devolve according to karma and other influences. The consciousness that inhabits those bodies is different; it enters into different bodies through its development. Therefore, physically, the bodies of dogs have been changing for thousands of years. Through that time, many different sorts of beings have lived in those bodies. One thing is the suit of flesh, and another is the consciousness inside of it. There is no "dog consciousness." There is a dog body, but the consciousness inside of it is different.
Understanding that, one can then understand that at this time, some of those "dog suits" house conscious sparks of the animal kingdom. We call them dogs by their appearance, but the souls in those bodies have been many other animals, too, so they are not really "dogs." RIght now they are, but they are beings like any other: working at their level, on their way to other forms. Other "dog suits" (probably many more) house the egos of the intellectual animals, as a way for those egos to be managed by karma. Oftentimes, a dog is merely a suit being worn by one of it's owner's egos. This is why they are so close, and have such interesting relationships (and can even look the same, because they are from the same person). So, considering that the entity in that dog suit is an ego, that entity in the suit is definitely devolving. This happens with many types of animals, not just dogs.
Are dog bodies devolving? Clearly, since human beings have fully corrupted the natural development of many of the dog bodies through selective breeding, they are growing weaker, sicker, and less suited to survive without our help. That sounds like devolution to me: a descent into decrepitude. Naturally, this not true of every dog on the planet, just as not every humanoid on the planet is devolving. Some are evolving.
“Nothing is easier than self-deceit. For what each man wishes, that he also believes.” —Demosthenes
"Do not worry; cultivate the habit of being happy." —Samael Aun Weor