This is indeed the case. Capsaicin is insoluble in cold water, but freely soluble in alcohol and vegetable oils. This is why drinking water after munching an habanero pepper won't stop the burning. A cold beer is the traditional remedy, but the small percentage of alcohol will not wash away much capsaicin. High concentrations are toxic .
Exposure is painful and even incapacitating.
The Mayans burned chiles to create a stinging smoke screen, and threw gourds filled with pepper extract in battle. Paradoxically, capsaicin's ability to cause pain makes it useful in alleviating pain. Exposure to capsaicin lowers sensitivity to pain, and it is applied as a counter irritant in the treatment of arthritis and other chronically painful conditions. People that eat lots of spicy capsaicin-rich foods build up a tolerance to it. Get the answers at Cornell University's FlavorNet , a molecular structure database indexed by flavor.