Seems like a lot of shared hosts upgraded to Rails 1.1 today, breaking many apps including every Typo blog installation. DreamHost (my host), TextDrive, Site5, etc.
Unfortunately the DreamHost upgrade was so broke that the rails command won't work (so no generating a new app), and neither will rake. Looks like someone forget to test things! But the upshot is you can't use the rake command to get back on a frozen 1.0 release.
Here's a workaround that should let your app run:
cd [RAILS_ROOT]/vendor svn export "http://dev.rubyonrails.org/svn/rails/tags/rel_1-0-0" rails
This will create a rails directory in vendor that holds the 1.0 release, and should let your app operate again. Worked for me.
UPDATE: Sorry about the previous tip that used a tarball of the 1.0 release. The tarball was actually of a project with the Rails release in the vendor directory, so it was slightly ugly to unpack. The svn recipe above does work for me - I just verified it to make sure.