You don't NEED the IP on the dream to be 1 less than your PC it needs to be in the same subnet, usually 1 less will work fine. Plus as others have said you need to make sure your firewall and/or other software isn't blocking the ports (21 for FTP) that FTP uses, or port 80 for the web interface.
To find out your PCs IP address go to START->PROGRAMS->ACCESSORIES->Command Prompt
In the little DOS window that appears type "ipconfig"
you'll get back something like
Ethernet adapter Local Area Connection 4:
Connection-specific DNS Suffix . :
IP Address. . . . . . . . . . . . : 192.168.0.22 <-------- important
Subnet Mask . . . . . . . . . . . : 255.255.255.0 <-------- important
Default Gateway . . . . . . . . . : 192.168.0.1
If you have a router I'd suggest its best to connect via that than directly into your PC since the router gives out IP addresses automatically to machines connected that ask for one (in this case my PC got 192.168.0.22) and that way if the Dream asks for one it will all get done automatically for you. All you'll need to do is go into the dreambox menus:
Menu > Setup > Expert Setup > Communication Setup
you'll see something like
IP: 192.168.0.4 [X] DHCP <-------- important
NETMASK: 255.255.255.0 <-------- important
TYPE [LAN[V] <-------- important
NAMESERVER: 93.45.123.98
GATEWAY: 192.168.0.1
[X] Enable Network Port 80 <-------- important
and next to the number at the top make sure the DHCP box is ticked... (DHCP is the computer way of asking for an IP number... a bit like HTTP is the way of asking for a web page). The subnet mask must match for the connections to work but that work is done for you too if you use DHCP on a router not the direct cable approach.
A simple way to test the PC and the dream can see and talk to each other. On that PC DOS box type PING 192.168.0.nn (where nn is the IP number of your dreambox)
You SHOULD get something like
C:\>ping 192.168.0.4
Pinging 192.168.0.4 with 32 bytes of data:
Reply from 192.168.0.4: bytes=32 time<1ms TTL=64
Reply from 192.168.0.4: bytes=32 time<1ms TTL=64
Reply from 192.168.0.4: bytes=32 time<1ms TTL=64
Reply from 192.168.0.4: bytes=32 time<1ms TTL=64
Ping statistics for 192.168.0.4:
Packets: Sent = 4, Received = 4, Lost = 0 (0% loss),
Approximate round trip times in milli-seconds:
Minimum = 0ms, Maximum = 0ms, Average = 0ms
It trys 4 times to send 32 bytes to the machine at IP number 192.168.0.4 (my dreambox) If there is a reply it tells you how many miliseconds it took... then at the end it averages it all up for you.
Another (less techy) way to see if the two machines (your PC and the DREAM) can talk to each other try opening a web page and putting in
http://192.168.0.nn (where nn is the IP number of your dreambox)
this then connects the two machines; with the webserver running inside the Dream talking to the web browser on your PC. You can remote control the dreambox from the PC and watch TV on your PC from the dreambox etc etc. This proves the connection works. It also tends to work on machines with a firewall as normally those machines connect ok to websites (like your private one of the dreambox now is).
Once you have proved the connection works you can move on to making other connections using other tools, knowing if there is a problem its NOT with the basic connection.
Hope that helps.