You can only activate cards that modify ATK and DEF (though not cards that modify effects that modify ATK and DEF, such as Reverse Trap), Counter Traps, cards that negate effects/activations, and cards that work when that card itself is moved (to the Grave, for example), in the Damage Step. Of course, mandatory effects and effects that mention they work in the Damage Step also work.
No, you just can't use this card during Damage Step, a part of Battle Phase where D.D. Warrior's effect activates.
Any other time in the Battle Phase allows you to activate this card.
Anyone having problems with this card? My monster was removed from play when dueling Kaiba by his DD Warrior, but this card was not able to bring it back, even during my next turn. My guess is that there is a glitch.