From your initial post:
Yes you are correct, that DreamHost does not allow you to databases except via the Web Panel->Goodies->Manage MySQL screen(s).
That said, the way you install Joomla!, or another program that needs a MySQL database, is to create the needed database in the web panel before running the installation script and use the information for *that database for the Database Type, , Host Name, User Name, Password, and Database Name fields.
I think it is as safe as using FTP ever is (I prefer SFTP), but it is important to realize that you *do not need to enable the "FTP layer" at all for Joomla! on DreamHost because PHP-CGI running under suexec avoids the permission issues the FTP layer was designed to avoid. I never install the FTP layer at all.
And from your last post:
Correct - that is precisely the case on DreamHost (see preceding).