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When saving a DWG to DGN wants to merge the references in to the master.Product: MicroStation V8 2004 EditionVersion: 08.05.01.25, V8i SS4, CONNECT EditionArea: Reference
In the Save As V8 Options > Reference tab > Self Attachments and External Attachments > Merge.
This merges the attachment geometry into the output file as individual elements.
Merging reference files during a Save As: http://communities.bentley.com/communities/other_communities/askinga/w/askinga/merging-reference-files-during-a-save-as