Well, had to setup some stuff on dreamhost. Turns out that they are fairly bad on django hosting. Here is a working passenger_wsgi.py that is possibly much better than the default. Please not that you must have paste [http://pythonpaste.org/] installed for this to work correctly.
This has python2.7 locally installed in your account, with all the libraries locally. Dreamhost is quite painful, as the documentation is incomplete clearly!