^It is a good joke.
I always half-expected to see the Sheliak in DS9, joining sides with the Dominion. An anti-humanoid league would have been fun.
The Dominion weren't anti-human, they were anti-solid. They were afraid of those who could not take a myriad of forms and who they felt were limited by their single, isolated shape. In that reguard it would appear the Sheliak were no different than Humans, as I doubt a shape-shifter exposed amongst the Sheliak ranks would provoke positive feelings.
However, if they're truly isolationist and xenophobic towards all other races as they were presented, the Dominion might not even see them as worth the resources to attempt to conquer.
And BTW, I never saw the Sheliak as being "more advanced" than the Feds as the OP contends, all we know about them is that they have a ship with comparable weaponry to the Enterprise D. They might have one of them and that's it, and they might have inferior technology in many other areas. Just because the Federation made a treaty with them doesn't mean they were superior or threatening, it's what the Federation does, they make agreements and try to maintain good or at least stable relationships with other societies.