是的,should 可以用在 suggest (that) 的从句中.但是,答案 A 把 referred to 当作从句的谓语部分来处理了,而原句中的 referred to 是分词作后置定语修饰 the dictionary(= the dictionary that is referred to),因而不正确.
此句从句谓语是 be bought,也可以说成:
The teacher suggested that the dictionary referred to should be bought at once.