After Years of Research
The result of genetic sequencing in the city of Greyhawk 2000 (now Greyhawk 2002) has shown that kobolds are actually highly evolved dicynodont therapsids. Kobold "creationists" have attacked the results.
The results are in the process of being verified, but should they hold up it would appear that the kobold will have to be moved from his position next to dragons and placed in among the reptile-like mammals. For now the consensus is that the kobold is more closely related to the human than he is to the lizard man.
There has been some controversy over the kobold's position as reptile or mammal, based in large part on the structure of their jaw hinge, and the shape and positioning of the ossicles of the inner ear. This parallels the similar controversy over the same structure in monotremes, which are classified as mammals. Some have pointed out the similarities between the two groups in that area, and have claimed that the kobold's jaw and inner ear is actually more advanced than that of the echidnas and the platypus. Because of that they have proposed that the kobold be named a mammal, while the monotremes be relegated to the rank of reptile.
The whole "scale" controversy, it turns out, was based on a single subject with a bad case of a kobold genetic disorder. In this disease the subject's skin will become heavily "cornified". That is, the skin will become rough and "scaly" in patches. Kobolds refer to it as, "dragon hide". A healthy kobold has soft, supple skin, appearing much like human skin. As with humans calluses are known to form on the soles of the feet and the palms of the hands in those who walk barefoot and/or engage in heavy labor. Unlike humans, kobold hair remains short and fine throughout their lives, and all over the body. No head or groin hair in other words. The presence of finger and toe claws marks another visible difference between the two species.
Subtle and gross skeletal differences firmly separate humans and kobolds. The latter having certain primitive features no longer possessed by the former, as well as derived skeletal features evolved by the latter since the two lines diverged sometime in the late Triassic.
As you can see the "kobold matter" is at once simpler, and more complicated than the layman is aware of.