Ok after several days of dialogue with the support department I was able to figure it out. Here's how to fully use Jabber IM accounts with dreamhost:
Note: this works with subdomains too - use subdomain.domain.com instead of domain.com. Also some client apps have a "user" field instead of a "JID" field, use your username only in that field.
To get multi-user conference working, specify "conference" as the conference server to connect to -- do NOT use "conference.jabber.domain.com" or "domain.com" or anything else. The room name can be anything allowed for room names by jabber (not sure if jabber limits it to alphanumeric characters).
Conference Server: conference
Room Name: anything
I was able to get this working in Gaim, Psi, Adium, and Exodus clients, as well as the XIFF flash API for Jabber. I'll also post this information in the KBase and suggested to DHs support staff that they should make an offician entry about this in the KBase for conference support.
Hope this helps others who were puzzled about how to get this working.