RSS feeds from XML files work just fine on Dreamhost. I am using the feed component for Joomla, and have no problems. Your problem is occurring because of the aggregator you're trying to use.
Get($rss_url) Load and parse RSS file $rss_url (e.g. "http://www.freshfolder.com/rss.php")
This tool tries to syndicate content from a site, that doesn't actually provide you with a true RSS link. It's designed to execute the remote page based on passed attributes, strip out all formatting, and provide you with a handy array of data elements for convenient use by you.
Accessing your lastRSS file via a url style reference, rather than local file path, could be causing the issue. How do you do the actual reference? Is your code a lot different than what is on the lastRSS site?