There are lots of them over at hotscripts.com, at all levels of quality and price. One I have used that I think is pretty sloickfor what it does is EasyHost
Frankly, I think such things are pretty risky to run, as you are ultimately responsible for all your users' behaviors under the TOS, but YMMV.
You know you could also just give them all pages or sections of a Joomla! or WordPress installation, or give them their own "blog" style site using Lyceum or WPMU (though I think Lyceum is better/easier to install on DreamHost).
There is also ELGG, which works very well on DreamHost, which might work well for your purposes.
You can also just give them their own directory on your own site and install a "filemanager" type script for them to use, or give them their own subdomain (on one of your domains) and set them up as a user, you can add unlimited subdomains at DreamHost, and host as many sites as your quotas will support (though I think it is a lot safer for you to have them get their own accounts).
Really, there are many, many things out there and several ways to approach this; you just have to play with a few of them, evaluate your risks, and see what meets your needs.