Easy fix 1
An alternate solution sticking to xypic
is the following:
\documentclass[a4paper]{report}
\usepackage{amsmath,amssymb,amsfonts}
\usepackage[all]{xy}
\begin{document}
\[\xymatrix{
& & M(\omega)\ar@{-}@/_.1pc/[ddr]\ar@{-}@/_.1pc/[dl] & \\
& M \ar@{-}@/_.1pc/[ddr] & & \\
& & & K(\omega)\ar@{-}@/_.1pc/[dl] & \\
& & K
\ar@{..>}@(ur,dr)_1 [uuu]
\ar@{..>}@(ul,dl)^2 [uuu]
}\]
\end{document}
Yielding:

The look is rather different, but for this single diagram it will do fine. However, this is only a partial solution, since in other contexts I might want to tweak around with those curved arrows, and at present I have no idea how to do that, and the answerer here seems not to know either.
"Easy" fix 2
Another solution with xypic
, as Kris told me by mail, is the following:
\documentclass[a4paper]{report}
\usepackage{amsmath,amssymb,amsfonts}
\usepackage[all]{xy}
\begin{document}
\[\xymatrix{
& & M(\omega)\ar@{-}@/_.1pc/[ddr]\ar@{-}@/_.1pc/[dl] & \\
& M \ar@{-}@/_.1pc/[ddr] & & \\
& & & K(\omega)\ar@{-}@/_.1pc/[dl] & \\
& & K
\ar@{..>}@(r2pc,r2pc)_1 [uuu]
\ar@{..>}@(l2pc,l2pc)^2 [uuu]
}\]
\end{document}
However, this only works from version 3.9 up, that is only with 3.9, since that is the latest version. Unfortunately, neither TL 2014 nor CTAN have that version, and they both have 3.8.9, which gives the following nasty result:

In Kris's own words:
The "3pc" are the width indicators for the curve that only 3.9 can handle - 3.8 just echoes them.
With the latest update newly downloaded from sourceforge, the result of this solution becomes:

I will soon experiment with the lengths in the parentheses to see how much tweaking I can do with the loop. This is actually documented on page 42 here, uh-oh, no, that is the old documentation, but on page 42 of the newer one from sourceforge you find the same table as in the older one, but with the <dimen>
possibility too, explained in 24p on page 43. Lots of tweaking can be done with this, as I have seen. I won't post examples because I don't know which of the many to choose, and they are too many :).
Source change -- still not known, will hear from Kris again :)
There seems to be a possible change in the source that would allow auto-dotting of bends. This is what Kristoffer Rose told me by mail, and I am going to try that. When I manage this, I will edit this answer to include that change. UPDATE Kris says:
To get involved in Xy-pic development you (1) checkout the source from SourceForge, (2) "make xysource.pdf", (3) study the "kernel" and "arrows" sections of the code (easiest in xysource.pdf). The fix will be to the place in the xyarrow.doc code where it currently uses a \cir primitive to do the turns, where you will want it to use a \crv primitive instead if that is loaded and the connection style is non-solid... (I was serious that this is a courageous enterprise)!
Now I have downloaded xy-pic from sourceforge, xysource.pdf is already present, but I looked through xyarrow.tex
and found no \cir
, only \CIR
or \cir@…
where … represents something I don't remember. The non-dotted bends are reported as a Bug in xysource. I couldn't find any \cir
alone in the arrows section, only \cir…
. I think I will now concentrate on my exams and come back to this thing in summer.
Note
The exchange with Kris also had the purpose of informing him of the broken links on this page. They are now mostly fixed, with a couple removed and one still broken. Will inform Kris in next mail. So if anyone has experienced the broken links, you can go back and find them fixed :).
cmtip
option ofxy
as it will fix the measly arrow heads.[all]
load that option @LaRiFaRi? WHat doesall
mean if an option is not loaded?all
is loading all the existent packages ofxy
. Don't know their names but maybexymatrix
,xy-pic
,2cells
... just out of head. Possibly developed separately and bundled by\usepackage[all]{xy}
.[cmtip]
is more an option, literally, and is therefore optional.all
probably loads the defaultxy
tip. Since there are various tips (xy
,cm
,eu
andlu
are documented here),all
loads the defaultxy
tip. Btw, the maintainers of this page should be notified lots of links there are broken because of an extra/xy
which should not be there :).xy-pic
is out of date (!); 3) See my answer for a couple ofxy
solution, one suggested by Kris and available only with the latestxy
version, one which I came up with myself by looking up@()
in the xyguide, as an attempt to fix Kris's solution which naturally didn't work with my TL 2014 version 3.8.9. PS If anyone wants to read those comments, I saved a screenshot :).