I've set up a RoR application on my Dreamhost account and it worked OK - mine is at http://search.chooseyournursery.com/. I have only put the framework in place but it looked just like it looks on my local machine.
Are you setting it up as a sub-domain or as a sub-directory?
You can’t use socket: in your database.yml file. You need to use host: yourdb.yourdomain.com
Let me know if that needs to be more clear. Your mysql database is on a different machine than your web account so you need to use the hostname of the server, not a socket.