It would seem to me that Dreamhost (or their registration partner) needs to go buy back your domain from the new "owner." However, I'm sure the person who's holding your domain will demand big $$ because they know you want it.
You have to decide if it's worth fighting for because that's the only way you're going to get it back. If the name is copyrighted (or something else similar, I don't know the legal requirement), then you may have a claim against the new owner for poaching. Other than that, it might be cheaper and easier to get a new domain name and get Dreamhost to give you free hosting for a couple of years (probably about equal to the value of what they've already offered you). I'm sure that the last thing you'll want to do. However, it's much easier and will probably be the fastest route to success for you. If you do go this route, you would obviously notify all of your customers and contacts. Also, you can include your old domain name in the META data for your new site to capture some search requests.
I don't see many other options short of taking someone to court. If you decide to go that route, small claims court would be cheaper if your damages are small enough (up to $10k in CA, where you'd likely have to file since Dreamhost is there).
Good Luck Plexuss.