The PS proxy service isn't that kind of proxy. It's a reverse proxy meant to allow apache on your server to proxy a url path to a server process running on another port on your machine. I've commonly used this mechanism to proxy a domain or subpath for a domain that's being served up by Tomcat. I set up Tomcat to listen on port 8080 and proxy apache to port 8080 (typically for the entire domain but sometimes just for particular paths under that domain).
Dunno for sure but it most likely uses mod_proxy in a reverse proxy configuration.
It is true that if you had full control over mod_proxy you could do what you're wanting to do with mod_proxy. There are also other solutions to your problem that don't require PS.
Is mod_proxy only running on PS servers or does it run on DreamHost's shared servers as well? What you want to do is just a matter of issuing the right directives in your .htaccess. Proxy scripts are discouraged as potential resource hogs but presuming you're going to protect your proxy from general public use, it should be fine.
There are any number of other proxy scripts you could use, though.
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