Kevin, this has happened to me over the years, so I would not be quick to blame Dreamhost. Unfortunately, I cannot remember what things work to fix this. Have you checked the permissions on moodledata and moodle folders. Consider trying a wide-open setting, chmod 777 on both of these folders. It might also have something to do with who "owns" the folders. I am not sure, but I think the owner of these folders has to be the account owner, although I think eventually (for better security) you can make "apache" own one of these... I forget.
Have you had success installing moodle in your regular domain? Are you sure it is a subdomain issue?
I assume you are letting the moodle installation create the config.php file, right? If not, it could be that something in your config.php does not match your database or moodle environment.
I see to recall getting this kind of message when I was once trying Plesk, instead of cPanel. Plesk had its own view of how to setup users, which could not synchronize with my brain. When I switched to cPanel, things worked much better.
Sorry that I cannot be of more help at the moment. You have me curious to try subdomains, but my semester has just begun and I'm busy with students.