Ok, I'm new to dreamhost so I'm just figuring out their methods myself. However, I do use Navicat (love it). I was having problems with the connection too. I just found a way around this (at least for the moment). From your Web Admin, you can modify the user for the database. It will give you a box to enter from what hosts you can connect to that database. You can enter a new line & put your ip address. Once you modify that, it'll let you connect from Navicat.
One concern I have is that if you aren't connecting from a static ip then this is going to change. I'll have to keep looking to see if I can find a more permanent solution, but maybe this will let you get started.