I don't know how much do we get this with magic update because that kind of suggestion seems to be tied to the Laws and Customs arc as well.
I think the best examples of antagonism between magic and non-magic users can be placed historically on the conflict between religion and traditional folk (witches/wise men/cunning folk). Therefore, I conclude that most of this kind of antagonism is lying on some religious viewpoint.
When we use history as a reference point, it was actually never about conflict between magic and non-magic, since church never denied magic itself. Differing was simply based on the interpretation of magic. In one time it was divine intervention and other time it was devils work. You can actually look witch burning as symbolic magical ritual itself that is meant to cleanse the world from evil. Church was filled with these kind of rituals.
So technically what you need is different religions differing in their views on magic and through the framework of law denoting opposing practitioners as criminals.
Non-religious conflict between magicals and non-magicals is easier to come. But its probably going to manifest itself only through personal level conflict. There may be deaths, but probably not organized witch-burnings, since the last can arise if there is general religious mainstream governing the society.
It's not into topic anymore, but I suddenly remember really cool idea from Guild II, where you could pay church authorities some money to declare your political opponent as a witch, so he/she might get burned after the accusation. So if its finally coming that far, gameplay is bound to make even Machiavelli smile.
In the historical case it is more like wizards oppressing other wizards for not being the right kind of wizard. That is a different situation from the situation in which the non-wizards oppress the wizards. Of course in my opinion the former basically evolved into the latter and the general prohibition of magic evolved into atheism which then undermined the very clergy that started the ball rolling.
At lot of this has to do with how much magic there is. In a world with low magic, then wizards oppressing other wizards is basically people in glass houses throwing stones. In a world with medium or high magic then someone basically needs to control the wizards and this can easily justify oppression.
No muskets, either. Toady has stated he's not going to add guns (or cannons, IIRC.) Weapon tech ends at crossbows.
If the production of +5 longswords is dependent upon wizards, that poses a problem for muggles. For every wizard that's willing to produce magic goods for muggles, there are going to be many more producing wands and +6 armor for themselves.
It does not matter if DF will ultimately have muskets in it, since they were just a narrative device to prove a general point about technological advance.
The main problem is not the ability of the wizards to themselves produce better weapons, that can easily be countered by the larger numbers of the muggles. The problem is that the muggles have an incentive to 'cheat', the wizards can play favours by offering enchanted weapons to the muggles which then make those particular muggles more powerful than their peers.
Interestingly in Dragon Age, the go-to example for oppressed mages, the enchanting of items and the mixing of potions are actually separate from magic, so that dwarves can use them despite being unable to use magic. Despite this however the circle of mages appears to have a monopoly on the enchanting of items on the surface, which effectively creates the situation that normally exists with enchanted items, without this even necessarily being the case.
If the templars were smart (would that be a contradiction in terms?) they would have made sure to prohibit wizards from using runes or mixing potions, keeping these things in the hands of the muggles. But then the ultimate end of Dragon Age II (sorry for spoilers, but the title screen makes this clear) is that the mages overthrow the templers.