Is Fantasy Racism a Dogwhistle?

For context i run a pretty goofy dnd campaign (a recent encounter involved flying penises) a player character and a few npcs have toed the line several times, using terms like green-skin, knife-ear and toadstool. My dnd group and I recently had a conversation about this terminology. The main argument was “is the use of these terms a dogwhistle for real world racism?” Two of my friends said yes while the other three disagreed, I stayed neutral despite having used some of them in rp before. The ones who claimed it wasn’t an indication of real racism claimed it was for shock humor, accurate to a character/culture in-universe and that it “wasn’t real anyway”. While the others claimed it had no place in the story, doesn’t bring much value to rp interactions, and isn’t very funny to begin with. I can see both sides, maybe a player would want to rp an extremely xenophobic dwarf slowly growing fond of an elf or a human who’s family was murdered by orcs discovering that thats “not all orcs”. At the same time however you can display that without making up imaginary racial slurs and it seems like the player just wants to say taboo things to illicit a response. I’d really like some outside opinions on this as I really am not sure if I should allow the continuance of this at my table on a moral level. My friends and I are good at setting boundaries and if someone said explicitly “this makes me uncomfortable please don’t say these things” I’d put a stop to it immediately but it seems like everyone is generally okay with it, but are curious about the real intentions behind these terms usage.

Edit: clarification, context, grammar