You are probably doing nothing wrong, but have run up against a circumstance where an existing DH user has “set-up” that domain for hosting on a Dreamhost server, without registering it.
Without it being registered, it can’t be reached via DNS, but there is nothing to prevent a user from “setting up” a domain in this way (it is just a directory on the Dreamhost system with an instance of Apache to run it.)
If the domain is actually available for registration, and you register it, just let DH know that circumstance, and they should make the domain available for hosting in your account. Without you being the registrant of the domain, you have no more right to “use” it than the other user, neither of you will be able to access it via DNS, and a registrant will have priority when it comes to the use of it on the DH systems. .