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Can we define the Display Rules in a dgnlib? Yes, We can.
The dgnlib should be saved at the location pointed by configuration variable MS_DGNLIBLIST
For example in my case MS_DGNLIBLIST is pointing to the following directory C:\ProgramFile\Bentley\MicroStation08.21.04.039\MicroStation\Default\Dgnlib
Open Microstation, go to File>Settings>Configuration>Configuration variable: