(Sorry for the late reply. I don't often check in here.)
What you really want is a generic shell environment designed for constant interactive use. The spirit of Dreamhost's TOS is that the shell account is meant to be used for any activity required to build and maintain your web site or web application. Other uses should be kept to a minimum.
If you're willing to pay for access to a java SDK on a shell server, check out "SDF Public Access Unix" http://sdf.lonestar.org/ for $36/year. I have a "free" account there and while I don't have access to any compiler tools, it works out great for access to SDF's BBS and holding some notes and miscellaneous small files of mine.
-- Happy Dreamhost customer, not an employee.