Children and the elderly are the two populations most likely to be seriously injured by dog bites. Children are frequent victims because they lack both impulse control and dog savvy. Since much of my business is family dog training, a large part of my responsibility as a dog behavior professional is to teach parents how they can help their children live safely with dogs and teach children appropriate dog skills. I also try to teach people about how to understand their dogs, what dogs like, what they don't like, and how they use body language to communicate these feelings and preferences with us.
Hugs are a frequent cause of dog bites to children - most dogs don't like hugging. Dogs just aren't a "hugging" species; they don't crave ventral contact like we primates do. When I tell this to my clients, they often respond with expressions of disbelief, and occasionally, indignance. "But my dog loves being hugged!" Frequently, when we watch the dog, his body language tells a different story - we see body language which includes "whale eye" (seeing much of the whites of the dog's eyes), looking away, lip licking, yawning, pulling away from the handler. If a dog decides he doesn't like being hugged, his teeth are at face level; this is why many bites to children involve facial disfigurement.
While dogs and puppies can be taught to accept (and in many cases, enjoy), gentle restraint, few dogs innately enjoy hugs. Of the dogs that enjoy hugs, there is a huge caveat - they usually only "love" it when it's someone in the family with whom they have a wonderful, healthy, and close relationship.
Yes, I believe dogs understand intimacy. Hugs, for the dogs that like them, are intimate things. Think of a hug like a foot massage, sharing a secret, or holding hands - if you like these things, it is likely that you:
only like to participate in these activities in certain environments or situations. You may like foot massages, but not at all times or in all situations (Imagine getting a foot massage from your hubby, with candles lit and rose petals, during a business meeting. Awkward much?)
are only comfortable engaging in them with someone you really care about (though there are limited exceptions to the foot massage rule in this case, says She-Who-Loves-a-Good-Pedicure-and-Will-Not-Hesitate-to-Pay-for-it.)
Dogs are much the same way. The rare dogs that do actually enjoy hugs (my Cuba is one of them - he will get up on the couch next to me, turn his rear around to me, plop 115 lbs of himself in my lap, and lean back until I wrap my arms around him), allow them in an environment of intimacy - when they are relaxed, extremely comfortable in their environment, and are "just chilling" with the person or people they love best. They will likely not love hugs from strangers, at times when they are rambunctious, nervous, or excited, or in environments they find very exciting (try reading a toddler a bedtime story at Disney Land!).
So while your dog may or may not like hugs, chances are he won't like them from strangers. He may or may not like to be kissed on his face (again, most dogs don't), but these also will probably not be welcomed from strangers. Your level of interaction with someone is generally determined by your comfort level with the individual in question. With dogs, I believe relationship is a direct product of reinforcement history - strangers have no reinforcement history with the dog in question, and there will be variance among reinforcement history and relationship even amongst individual family members.
For the record, I like to kiss dog faces and hug dogs. I only do these things with my own dogs. Since Mokie doesn't love hugs (but does tolerate them), I generally snuggle her in other ways that she likes, but since I do like to hug her, I always try to pair our hugs with something she loves, like a delicious treat. Both of my dogs do occasionally like a smooch on the muzzle, but only when they're REALLY tired after a long day and are up for serious snuggling and only if they get lots of massages before and after. I try to be respectful of their preferences and wait for these opportunities when we'll both enjoy them together.
I guess the lessons to be learned from this are:
Don't assume - let your dog's body language tell you what he likes/doesn't like. Learn about signs of stress and how to respond to them effectively. Doggone Safe is a great resource where you can learn more.
Protect his intimacy boundaries - hugs, kisses, etc., might be appropriate for some dogs in some families, but strangers should not be allowed to do this to your dog
If you like hugging and kissing dogs, it is your obligation to get your puppy into a well-taught puppy class where he can learn these things are not scary, but in fact make great things happen for your puppy. It is important that we teach the dog that these things (hugs and kisses, etc.) that we like predict something for the dog that he will like (treats, chest scratches, etc.)
Realize when your dog is "not in the mood" - no hugs or kisses in the middle of rough-housing with a favorite doggy friend or chewing on a bone, por favor.
Watch your dog - dogs will often tell you what they think feels great if you pay enough attention. Your dog may not like hugs, he may like to have his ears or bum scratched, he may like long, slow, gentle massaging touch along the sides of his mouth, perhaps his favorite is a neck scratch.
Remember that hugs are every bit as natural for dogs as butt/crotch sniffing is for human greetings.
So maybe your dog likes hugs, maybe he doesn't. It would behoove you to find out, and if these things are important to you, find a qualified trainer who can help make the experience more pleasurable, comfortable, and less anxiety-inducing for your best friend.