Sorry, just to clarify:
You created your subdomain blog.xxx.net and installed WP there
When you look in the directory you have for blog.xxx.net, you see WP files
However; you are also seeing WP files in the directory you have for xxx.net
You try deleting those files, in xxx.net, but when you do you get errors for blog.xxx.net saying "Error communicating with server!"
Does that sound correct?
If so, do you have blog.xxx.net pointing to the same directory as xxx.net?
You only have to have WP installed in one place for it to work. However, if your sub-domain is pointing to xxx.net (mirroring), or using the same directory as xxx.net, then you will have issues.
In the DreamHost cpanel, under manage domains you can have a quick look at each of the domains xxx.net and blog.xxx.net and see if they are configured to each be fully hosted. If one is mirroring the other than that is the issue.