Theressa I am doing the same procedure very frequently using 9.3, but without using the "CAD to Feature Class with Attribute of NearestPoint" I use more basic tools that might work in 10 version too.
Import the cad polyline and the cad annotation layers into the ArcMap. Use "Feature to polygon" to convert polylines to polygons and "Feature to point" to convert annotations to points (I thing it needs to be a text and not a block but give it a try).
Then use spatial join:
Target features: use the new polygon layer
Join features: use the new point layer
Check JOIN_ONE_TO_ONE
As Match Option use: CLOSEST
I am using it inside model builder (from where you can export in python) and I do repetitive transformations for plots and plot numbers for different areas
If the text is totally inside the closed polylines I am just using the "Feature to polygon" procedure using as Input Feature the cad polyline layer and adding at the Label Features the annotation cad layer.
I do not if that was helpful
Eleni