It sounds as if you are "almost there" with what you want to do. You might want to review this Dreamhost Wiki Article on Users, paying special attention to the section entitled " How do I share website access with another FTP user?". This describe the "simple way" to share a website, or websites, but has the important restriction that you need to log-in as the "sub" or "other" user in order to manipulate their files or directories.
If you really want your "master" user to have access, as him/her self, to the other users' files, it gets pretty complicated, and involves establishing, and maintaining, *nix groups. This Dreamhost Wiki article called "Unix File Permissions Cookbook" describes how you can "share" access to and control of files and directories in a recipe called "Maintaining Group Ownership", as well as other permissions related discussions.
In my opinion, while this process does "work", it introduces considerable complexity, especially when you consider that cgi scripts on Dreamhost run as your designated user (per domain) (via suexec), and setting a directory as group writable interferes with the requirement that directories containing cgi scripts to be run, and the scripts themselves, need to be "755". The "short version" of that discussion means that, practically speaking, using persmissions that "set the sticky bit" to share ownership of directories often will also entail a series of other manipulations to change the directory ownership/stickybit settings (some use cron scripts) from time to time, as needed for various situations/circusmstances.
In this circumstance, what has worked best for me is simply providing them with a "filemanager" cgi program instead of actually creating another user.
This is "better" to my way of thinking because I don't have to worry about the users learning/borking the use of an ftp client, I end up the nix "owner" of *all the files, and it is "easy" for them to use and for me to set up.
I recommend a perl program for this, as there are no problems with PHP's filesize lilmits for uploads. The "cleanest/simplest" program I have found for this is ffileman v.08, because it is so simple for me to install and for the users to use (though there are others that work just as well - check hotscripts.com for more chioces than you will want to wade through!) This provides them with a "limited" ftp-like facility that you can control to a greater degree, and since your user owns all the files, you can manipulate the contents of the directory conveniently. Installling the script I suggested it is very simple:
1) Download the archive from sourceforge (see the provided link)
2) Extract the file(s) from the tarball (or the zip file)
3) Edit the "script" (just a text file) to add username/password, and a couple of other things (well documented!)
4) Upload it via ftp to the desired "sub" directory on your server
5) Set the permission on the script file to "755"
6) Navigate to the script's url, and enjoy.
The script is small, and can easily be installed in as many "users'" subdirectories as desired, while allowing you to maintain full control.