I imagine it's just a scent thing. Wolves have got to put out far more "this is my house" pheromones than dogs. That combined with the "dog, but not quite a dog" scent probably combines into the olfactory equivalent of a boogie man for dogs.
Some breeds - wolf hounds, borzois, mastiffs, etc - have had the fear bread out of them, but the average hunting dog is going to get pretty freaked out.
On an interesting corollary, I was at a dog show several years back and saw a very highly groomed borzoi on his way to the ring go completely nuts out of the blue and try to tear his way into a kennel inhabited by a wolf mix. The handler managed to pull him off, but it's not something I'll forget. Dogs have a long genetic memory.