If you are currently treating your dog with flea pills and shampoo, you are over treating your dog. You first need to determine if the flea meds you are using are black market or not. Did you purchase them from a reputable company? What type are you using? Once you determine the product is good, stop using the flea shampoo - it can cause skin problems to say the least. If the flea pill you are using is okay, even if you see a flea on your dog, it will be dead within 24 hours, making it unable to breed.
DE is NEVER safe to inhale, not on the ground and not in the air. You could be causing your dog irreparable harm to put it on your carpet if your dog likes to stick its nose in the carpet. As long as you are giving your dog the proper dosage the flea/s you see should die, if not then you best bet is to switch to a topical. Good Luck

Even with the topical treatments you may still see fleas. I have tried advantix and frontline which I bought from my vet. Neither worked well enough in my opinion as I still saw fleas on my baby. I haven't seen any in awhile but I think that is more due to the change in season than the topical working any more effectively. The best thing to do is to just pick the fleas off as you see them. While they won't breed I know they were still annoying my baby, and I hate the though of bugs in my home.

DE is safe if it's food grade, it becomes ineffective when moist, throat and lungs = moist. Work it down in the carpet, you don't need to use a lot, the amount he inhales will be minimal. Read here.

Here is a link that might be useful: Die Fleas Die

I'm not sure if they are around anymore, but the company Flea Busters did a great business using DE to kill fleas in people's homes. If applied carefully to the carpet and worked in, it does seem to be relatively safe. But as someone above noted, it is does have very serious consequences if inhaled (you cannot get DE out of your lungs once it's inhaled into them- can cause granulomas and severe pulmonary inflammation- bad stuff). So if you are applying it yourself, use a mask and keep others out of the house in the mean time. It is very effective at dessicating fleas and flea larvae, in carpeting and other materials... pretty worthless on hardwood or other solid floors, though.

Having said all that, most good products today are very effective against fleas. The main problem people experience is not product failure, but either application failure, or more commonly, realistic expectations failure. Frontline, Advantage and REvolution, to name three good products, all kill fleas probably equally well... but there is a delay period for each, and so fleas may be seen moving about, though they are actually going to die soon. And if new fleas continue to jump on your pet, you may continue to see fleas indefinitely. Unless one can stop your pet from continuing to get new fleas, fleas will continue to be a problem. Products like Comfortis and Capstar kill fleas much faster, but they have their own limitations as well (though Comfortis is a pretty darn good product). They will not, however, do anything towards killing fleas in your environment. So, that might be where DE could come in and help. Does NOT work outdoors, though (as someone rightly mentioned- useless when wet.. or even damp)

I might add that DE is also great for ear mites.