You can upload away, but the files you are uploading must be within the purpose (and of the nature) permitted by the TOS.
"Personal Storage" as well as "back-ups" can be an issue - assuming the files themselves present no legal issues, it all depends upon how the files are used. This recent DreamHost status blog post might clarify things a bit.
Note that your friend may, or may not, be within the TOS, and it is dangerous to assume that just because he is doing a thing and has been been called on it, that it is "OK". - It may well be fine, but it could also be that they just haven't yet fully identified what he is doing and/or reacted to it yet.
At any rate, if you read the TOS, and that "clarification" (and maybe "abuse.dreamhost.com) you will get a good idea of what is allowed.