After failing at this left and right, I finally arrived at a half-way semi acceptable solution. It's obvious DH has an issue on some of their servers and not on others.

The solution is to follow the directions for running a custom php.ini, however there's one exception.

First of all, the directions are at:

http://wiki.dreamhost.com/PHP.ini

The exception is that copying the default php.ini file should be:

cp /etc/php5/cgi/php.ini $HOME/example.com/cgi-bin/php.ini

(note the addition of cgi in the src dir.)

After following these directions, pretty url's on this installation work like a champ.

Jereme