Nope. Specifically prohibited in TOS:
"BitTorrent clients, proxy servers/scripts, IRC bots and bouncers (BNC) specifically may not be run on any DreamHost Web Hosting server."
Just because you're paying for bandwidth (and disk space, etc.), it doesn't mean you can do whatever the heck you want with it. Illegal activity is one clear misuse of a resource for which you've paid.
The main concern here is that people aren't running processes on a server that are resource hogs. A proxy server hogs memory, CPU, and TCP/IP connections without ever letting go of them.