As a farang, you're just as welcome in the karaoke bars and clubs. Only some Chinese-only places would refuse a white guy.
Meanwhile, whereas Indians might see themselves not being able to enter certain bars in Pattaya or Bangkok, they are more than welcome in the Malaysian-oriented bars.
FYI, Sadao is the district. Ban Dannok (or Dan Nok) is the actual border town. Malaysian men coming for quick fun don't venture north of Dannok into Sadao proper.
There are many foreigners living there: mostly Filipinos, Africans and a lot of Arabs. Narathiwat even has an American community of missionaries. Never heard of any of them getting in trouble with insurgents.
As sad as something like that is, it doesn't make it more dangerous for a random person. Since the last few years the violence has subsided significantly. I would feel less safe in a place like Pattaya than I do in Narathiwat.