Do dollies like to hold in any particular types of water?
Of course, just like all other fish. From what I have experienced, bull trout and dolly varden love to sit in very slow, almost static water. This is usually the tailout of a deep wide run. They do not seem to have a preference on the river bed. I've caught a lot of fish on very sandy bottom, as well as your typical bottom that is mixed with small gravels and a few large boulders. Structures that provide covers are also their preferred habitat. A log jam, overhanging tree, underwater log, large boulders are places where they like to hide. Generally they are lazy, meaning they enjoy sitting at one safe spot and wait for food (eggs, down-migrating fry, pieces of salmon flesh) to drift by.
Here's Carlo nailing one on a trout bead under the indicator:
http://www.youtube.com/watch?v=nWE7UDjVXFohere he is again, getting a bigger fish by swinging a sculpin pattern:
http://www.youtube.com/watch?v=GVN-KBVvC2QBoth of these fish were caught in pretty shallow water (+/- 3 feet).