This answer is incorrect since I failed to account for the fact that we wish to count those arrangements in which DOLL appears exactly once. The issue is that when we apply the Inclusion-Exclusion Principle, we usually start with all the arrangements, then exclude the bad arrangements. In this case, we start with arrangements that include DOLL once, then wish to exclude arrangements that include DOLL more than once. See Joriki's answer for a correct solution and this question he posed about a generalized version of the Inclusion-Principle.
If DOLL appears once, we have $18$ objects to permute, the block containing DOLL and the other $17$ letters. As you concluded, we have $18$ choices for the position of the block and three choices for each of the other $17$ letters, so there are $$\binom{18}{1}3^{17}$$ arrangements in which DOLL appears once, as you found.
From these, we must exclude those arrangements in which DOLL appears more than once.
If DOLL appears twice, we have $15$ objects to permute, two identical blocks containing DOLL and the other $13$ letters. There are $\binom{15}{2}$ ways we can place the two blocks and three choices for each of the other $13$ letters, so there are $$\binom{15}{2}3^{13}$$ arrangements in which DOLL appears twice.
If DOLL appears three times, we have $12$ objects to permute, three blocks containing DOLL and the other $9$ letters. There are $\binom{12}{3}$ ways we can place the three blocks and three choices for each of the other $9$ letters, so there are $$\binom{15}{3}3^9$$ arrangements in which DOLL appears three times.
If DOLL appears four times, we have $9$ objects to permute, four blocks containing DOLL and the other $5$ letters. There are $\binom{9}{4}$ ways we can place the four blocks and three choices for each of the other $5$ letters, so there are $$\binom{15}{4}3^5$$ arrangements in which DOLL appears four times.
If DOLL appears five times, we have $6$ objects to permute, five blocks containing DOLL and the other letter. There are $\binom{6}{5}$ ways we can place the five blocks and three choices for the other letter, so there are $$\binom{6}{5}3$$ arrangements in which DOLL appears five times.
As you observed, DOLL cannot appear six times. Thus, by the Inclusion-Exclusion Principle, the number of arrangements of the letters $\{D,L,O\}$ with repetition in which DOLL appears only once is
$$\binom{18}{1}3^{17} - \binom{15}{2}3^{13} + \binom{12}{3}3^9 - \binom{9}{4}3^5 + \binom{6}{5}3$$
$$ \sum_{k=j}^n(-1)^{k-j}\binom kja_k $$
ways to fulfill exactly $j$ conditions. A case in which exactly $m$ of the conditions are fulfilled is counted in $\binom mk$ of the $a_k$, and thus contributes
$$ \sum_{k=j}^n(-1)^{k-j}\binom kj\binom mk=\delta_{jm};. $$
– joriki Jun 01 '16 at 10:33