Think I've worked out a solution.
In the OnSelectedIndexChanged event, declare the dropdownlist as an object and then use the .parent method to go back up to the datalist item control.
Code:
Sub change_ddl_level(ByVal s As Object, ByVal e As EventArgs)
Dim ddl_id As DropDownList = s
Dim dlst_item As DataListItem = s.parent.parent 'this finds the datalist item
Dim td_incrby_h As HtmlTableCell = dlst_item.FindControl("td_incrby_h")
Dim td_incrby As HtmlTableCell = dlst_item.FindControl("td_incrby")
If ddl_id.SelectedValue = "inc" Then
td_incrby_h.Visible = True
td_incrby.Visible = True
Else
td_incrby_h.Visible = False
td_incrby.Visible = False
End If
End Sub