Can you give some more information? What are the input and output coordinate systems? WGS84 will have negative longitude values, but I think you may be using a projected coordinate system (like a UTM zone)?
Are you setting a geographic/datum transformation? Is you are, which one are you using?
Can you do the re-projection in ArcMap and have the CAD data display correctly?
If you convert to shapefile but keep it as PSAD56, does that conversion work correctly?
I don't work with DGN files--is it created in a particular version?
Thanks,
Melita