I've been with DreamHost since 1998, and although they had two bad spells of growing pains, for the most part I've been quite happy with them as far as shared hosting goes.
They've got a nice control panel, a LOT of nice features, and in my personal experience support queries are dealt with pretty quickly. More recently, I like the fact that they're more transparent than most hosts--if you care to read the blog and status "blog"-thing, they're pretty upfront about what's going on and how they run the business. I find that to be better than the standard "We have servers, give us money." model of a lot of webhosts, even if it makes their shortcomings a lot more obvious.
As for the actual question, yes, you really can use that if you want (though I'm only using a couple gigs of storage and a few gigs of bandwidth spread out over about a dozen sites). Obviously it's based on the law of averages and they couldn't maintain it if EVERYBODY used that much, but then neither could GMail if everybody used the full quota.
The only "catch" is that since it's shared hosting, if you have a website that puts heavy load on the processor, you'll be asked to reduce the load or go with a dedicated server. So if you're serving mostly media files, great option. If you've got a lot of server-side work going on, MediaTemple's grid-based thing is probably a lot better.
Just want to point out that while it's not the right option for everybody (I can and do use WestHost for heavier-duty eCommerce stuff myself), they're not a terrible host. Just depends on what your needs are.