I've ran phpbb for quite awhile now using DreamHost's default settings. I have yet to upload my own version of php.
I have seen phpbb get updated on the web panel.
I have read some about DH wanting to add an upgrade secion on the panel. I have not heard of any date yet though.
If you have any mods, odds are you still will have to do the upgrading your self. Or atleast until ver. 3 comes out.
If you don't have any mods, you could test the web panel to see if it can upgrade. Just make sure you backup your database first. That includes the program on the server, because the smilies, avatars, and attachments are stored in the forum folder.
If the web panel does not work, you can always restore your backup, or get a fresh copy from phpbb.