What is a good ratio to use when substituting dry milk with fresh milk? When would it be inappropriate to use fresh milk instead of dry milk?
It depends on the type of dry milk—there are several processes for making it, and the density varies.
But a good place to start is to read the package of dry milk for the reconstituting instructions. For example, it if tells you 5 tbsp + 1 cup water to make 1 cup reconstituted milk, then you'd substitute 1 cup (possibly scalded) fresh milk for 5 tbsp dry milk. If you don't have a package of dry milk, ⅓ cup dry milk + 1 cup water is given by the USDA. Other places say ¼ cup. Wikipedia says 10% by weight, citing Wayne Gisslen's Professional Baking.
Keep in mind that you must reduce the amount of water in the recipe to compensate. Within epsilon, reduce the water by the amount of liquid milk you added.
For temperature-sensitive recipes, you may need to warm your milk somewhat, as the recipe probably was designed for room-temperature water, not refrigerator-temperature milk.
Note: According to a random site on teh Interwebs, scalding pasteurized milk apparently slightly improves bread. In pretty much everything else, scalding pasteurized milk has no effect.
Generally you do not not want to substitute fluid milk in place of dry for bread recipes, because there is very little moisture in the recipe. The balance can't really be achieved using fluid milk.
What is your exact recipe? its possible that if there is other fluid that can be substituted for the milk which will balance the recipe out.