All you should need to do is create a directory called silverstripe-cache inside the webroot (domains/your-domain-name.com/html) and make sure it's writable by the web server user (which it should be by default if I remember correctly for (mt)) and it should pick that directory up instead.
If you want to check what it's doing, do something like this:
echo TEMP_FOLDER; in either your _config.php or after line 57 of sapphire/core/Core.php
silly question - does having the url included in the dev server list affect caching? your comment about checking the _config.php file made me open it up and i removed the current server listing and all of a sudden the cache worked.
I to am trying set up ss on mediatemple. I got it all running and I have noticed a big lag and came across this. I have been messing with the core.php and I can get different results but can never get it to use the folder that I set up for it more than once (if i get rid of "sys_get_temp_dir();" and put in the folder manually and get rid of the "$cachefolder" variable). I've read the wiki that you setup and tried the patch, but all that does is return errors also. Can you explain exactly how this is done?