Hi rdoyne,
While this doesn't address the "Create from File" tool not working, another option to create a terrain element from an LAS file is to display the data from the LAS file as a Point Cloud element in MicroStation and then use the Civil tool "Create from Point Cloud" to build your DTM from that Point Cloud.
The MicroStation Point Cloud tools will convert the LAS to a POD and display it.
You can then create a Terrain element from the entire point cloud or use a fence to section off an area of the point cloud and create a terrain from within the fence.
If the LAS contains point classifications, you can toggle off the display of the classifications you wish to exclude from the terrain, and they will not be included in the terrain you create.
HTHs