After this ordeal, I wrote this "how to" for our office. Some of you may find it helpful and I welcome any changes/criticism.
Steps to create an existing Digital Terrain Model (DTM) from an AutoCAD survey:
Decide how you are going to make the model and most importantly, what will be ?existing? and what will be ?proposed? when it?s complete. The following steps should be used for the existing site only. Later on you will use site modifiers to change parts of it to ?proposed.?
Import .dwg survey into a new VW file with ACAD layers>VW classes.
Sort through the classes and see if anything is already in 3D that you may be able to use.
If everything is in 2D, carefully trace over the topo lines with the polyline tool, starting from the lowest elevation and working up; if you trace out of order, the 2D contours>3D polys command is more tricky, but not impossible.
When tracing, do not create arcs (do that manually by creating many vertices with the straight line part of the polyline tool) and do not create vertical ?walls? or inverted ?caves?. Avoid this by offsetting the traced topo lines by a small amount (1/2?) to make very steep, but not vertical walls. At no point can the lines touch or cross.
Cut and paste only the newly traced topo lines into a new VW file and put everything on the ?none? class.
Select all and pick ?2D contours>3D polys? command from the AEC menu. Use the tool to change the Z coordinates (elevations) for each of the topo lines.
Select all and use ?validate 3d data? command from the AEC menu. If it reports any errors, use the loci to find the problem and fix it.
Select all and use the ?create site model? command from the AEC menu. Change the settings appropriately and in 2D, make sure the ?smoothed? option is not selected as this can sometimes create problems. Also experiment with the ?keep source data in the same layer? checkbox. If you leave it checked, make sure the class attributes of the 3D polys have no fill.