Yikes! I never even noticed that and you are absolutely correct. Mea Culpa!
I'm guessing DreamHost has done that as a security feature ... and that alone would keep me from using it.
Well, I suppose one could argue that some might be willing to use the theme as shipped, but I think I agree with you on that.
Maybe DreamHost is trying to be supportive of the theme authors? I doubt that is part of the consideration here, but one never knows. Links embedded in themes are a sore point with me anyway, so I just would never use that one if I couldn't change it.
Those in the "diary" theme you liked are especially troublesome, as they appear as though they are generated by the "blogroll", even though they are not.
This kind of a limitation, and the lack of your choice of plugins, are just more reasons to roll your own and install your ownWordPess, or at least use the orignal "one-click", IMHO.