Mark without looking at the file it may not be easy to say anything. Can you upload the file.
Mark, what SW version and SP you running on your machine.
I was able to open the file directly in SW09 SP 4.1 and import it in a new part file. Though I got some import errors but it was successful in the end.
Try this in SolidWorks.
File > Open > Change File Type to DWG > Select your dwg > On Import Wizard Select 'Import to a new part > Select Next > Select Next > Select Finish
You should get an error message that you have 10 points out of the modeling limits. You have data in your dwg file that is outside the geometric limits of the model space in SolidWorks. Get rid of this data and I bet you will be able to import.
You should be able to see this when in DwgEditor or AutoCAD you select zoom extents and you can no longer see your data because it is so small trying to show the entire model space and the extra ten points somewhere in the dataset.
I am using SW2008 SP5.
What version and SP of SolidWorks are you using?
What are your computer system specs?