Alright, if you have a Mac, completely forget a very large portion of everything I said before: there is a much better answer when it comes to setting up DynaMIPS w/ GNS3 in OS X.
First, go here: http://sourceforge.net/project/showfiles.php?group_id=160317&package_id=235898. Get Dynagen_0.11.0-Tig.dmg and, if you don't feel you need Dynagen (you don't), feel free to yank the DynaMIPS executable out of the DMG and throw it someplace useful, just as before.
Next, go here: http://www.gns3.net/download. Get the GNS3 DMG and promptly install the hell out of it.
Now, run GNS3, tell it where to find the DynaMIPS executable, download and configure an IOS image, and voila! You have yourself a shiny new DynaMIPS/GNS3 install in OS X.
Handy? Absolutely. Handier, still, on my MacBook? Oh, hell yes.