To clarify - the Google Earth image data will only display if you use Capture Google Earth Image. This is what both John and I are referring to.
As a workaround for the image resolution being low when you capture, you can:
1) Immediately after capturing the GE image, do not move your GE view at all. Choose File->Save->Save Image, and browse to the same directory as your DGN file. Look for the "terrainCapture" image with the highest number, and replace that with the GE image you're saving.
2) Close your design file in MicroStation and reopen it.
3) If you look at the captured area now, the low-res black and white image should be replaced with a higher resolution image from Google Earth. As long as you didn't move your camera, this image should be placed correctly on the mesh.