You do not need to remove or edit your existing domain, you can leave that as it is. What you need to do is add a free dreamhosters.com sub-domain under the Mirrored section of the Add New Domain / Sub-Domain section of the panel, setting this sub-domain to mirror your real domain.
I am not familiar with OS X, but make sure you are using the IP address assigned to your domain, as each physical DreamHost server has many Apache instances and IP addresses available and you need to use the one assigned to your particular domain.
You can find the correct IP address by going to Domains -> Manage Domains in the panel, clicking the DNS link under your domain then taking the IP address from the www A-Record.
You may also need to reboot your computer after making the relevant changes to your hosts file.
Save [color=#CC0000]$50[/color] on all DreamHost plans using [color=#CC0000]PRICESLASH[/color] promo code (Click for DreamHost Review)