dogs sweat through the bottom of their feet, so that can very well be the source of the stinkiness.

Anyway you need to condition him to the dryer. Have it on the lowest setting, and lay it down. Have him inspect it. If he goes to investigate, PRAISE HIM!! I DO NOT recommend hugging him or reassuring him that "its ok!" because that will only tell him "hey, there IS something to be afraid of!" and will most assuredly make it worse.

The only way to get over it is to IGNORE the fearful behavior and condition him to it. Jamie was terrified of it at first, too, but we don't have a backyard for her to run around and dry off in so I towel dry her as MUCH as possible then use the dryer. Sometimes she still gets freaked and tries running off, but most of the time she just sits there now!