Yes, that is the default manner in which DreamHost sets up the directory. If that is what is there, when you go to the “one-click” setup page for WordPress, you should enter only the “rest” of the path under the “install to” part of the form if you want to install WP into a sub-directory.
For instance, if you site is at “http://yourdomain.tld”, then in the install form, you should use the “pull down” selection list to select your domain and just leave the following line blank if you want WordPress to be installed at “http://yourdomain.tld”.
If you want it to be installed at “http://yourdomain.tld/blog/”, the just enter “blog” on that second line, etc.
Note that you should not have to manually type, or enter, any “http://www…” at all; only select the pulldown for the domain and indicate (as described above) whether you want to install it in a subdirectory.
If you have done that, and are still getting an error message, I don’t know what could be the problem. Are you able to FTP to your user area and see the “yourdomain.tld” directory? Is that directory completely empty of files?
IF that directory is not in your user area, but shows in the panel, you can either contact support or add it yourself (via FTP or ssh). This should not be the case if DreamHost has completed setting up your domain.
If it does exist, and there are any files in that directory, you will have to delete them to use the one-click installer in that directory (or install WordPress in a subdirectory that is empty!).