This is a customer-to-customer forum and, while DreamHost staff occasionally drops by, they rarely post here. For an authoritative answer, if you are not presently a DreamHost customer you should contact DreamHost directly (http://dreamhost.com/contact.cgi), or if you are a customer, submit a support request via the Control Panel.
That said, your question is an easy one: If it is not illegal in the United States, or in California, you can host the content on DreamHost.
With an “image hosting” service, you always run the risk of someone uploading illegal content (copyright infringing, certain types of pornography, etc.), so this should be a consideration for you if you don’t want to lose your DreamHost account. Claiming that “your users did it, not you” won’t help you much, as you are responsible for what is stored in or served from your account (see more details at http://abuse.dreamhost.com)/
Additionally, even if you avoid TOS violation regarding content, the nature of most “image hosting sites” is such that you are very likely to find hosting one on a shared server is not going to work unless you carefully limit the access to it. As they can be extremely popular, you will likely (as many others have proven) find your site using more resources (CPU/mem/concurrent apache connections) than are suitable for a shared hosting service, and find your usage curtailed. The DreamHost TOS also addresses this issue.
DreamHost will limit your use, and/or close your account on a shared server if your site negatively impacts other users sharing your server.
Generally speaking, any publicly accessible “image hosting site” is only appropriately operated on a dedicated, or vhosted, server.