For anyone who has had this problem with sqlite these are the steps that I took to fix it.
install it in your environment (as per dreamhost wiki)
In addition I added:
download and install python in your environment
(i upgraded to python2.5). This step is needed because the python associated with dreamhost is not compiled with your version of sqlite or pysqlite.
update your environment to have:
download and install in this order
setuptools, pysqlite, MySQL-python, +other modules you need
$python2.5 setup.py install --prefix=$HOME
from there everything should work.
for django users change your dispatch.fcgi: