Comment # 2 on bug 1003634 from Wolfgang Bauer

JFYI: xdg-open /usr/share/applications/org.kde.dolphin.desktop is not supposed
to run dolphin, but rather open the file
/usr/share/applications/org.kde.dolphin.desktop in the corresponding default
application.

See the man page:
xdg-open opens a file or URL in the user's preferred application.

So yes, if you assign xdg-open to open .desktop files with, you'll create a
nice endless loop...
Not a bug IMHO, not even upstream.