Tom,
My experience has been great using rails on Dreamhost so far.  I found 
that it was not the best place to fully deploy a rails environment, but 
if the development was done locally and the shared host with limited 
access - Dreamhost, just handled the live environment with the fastcgi I 
was fine.  I wrote an article here 
http://topcweb.com/content/ruby-rails-setup  Pretty much install instant 
rails locally and do your development there.  Also feel free to contact 
me and I will share further.
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