When you attempt to create the new database, is the old hostname available in the “Hostname:” drop-down list? or is the only available option “Create a new hostname now…”?
Looking at the MySQL page in the panel, I can see no obvious way to manually delete a hostname, only add them. Databases themselves can be deleted, but I am not sure if deleting your last database on a particular MySQL server will also delete the hostnames you have associated with that server.
Adding a hostname creates a corresponding DNS A-Record for your domain, pointing to the MySQL servers IP address. In the past, A-Records associated with sub-domains have been known to become ‘stuck’, even after the sub-domain has been deleted, so perhaps something similar is happening here, with the A-Record associated with the hostname becoming ‘stuck’.
If this is indeed what has happened, then I’m afraid the only solution is to contact DreamHost support, detailing the problem, and they will run a manual DNS update on your domain, which should delete the unwanted A-Record, allowing you to re-create the hostname.
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