I created a custom faction that is unlikeable(-3 diplomacy), and all other factions actually are treating my faction like I've got maxxed out diplomacy. I'm getting 3 +++ for each faction. I'm using the drengin tech tree. The only tech I have in the diplomacy tree is universal translator, and I'm at turn 100. Every other faction in the game(8 factions) is at warm, friendly, or close with my malevolent aligned faction with 4 selections in the evil tree. I've invaded and captured the homeworlds of 2 of them(Yor and Iconians), and they're still super friendly.
I did a forum search to see if this was a known issue and didn't find anything on it.
EDIT: Added the "Game Breaking!" tag to the title because it really is. As a faction that selects a -3 modifier to diplomacy, you do so most likely because you don't plan on teching up the diplomacy tree or otherwise using diplomacy in general. The fact that everyone is super friendly with you makes the game unchallenging, but having to tech up diplomacy in order to make them stop sort of defeats the purpose of setting up the faction, and derails my research in other areas.