Stephen Houghton talks about setting the units of an AutoCAD file when it is going to reference other files, and why it is important to do so.
"I was having trouble attaching an xref into my drawing at the correct scale. When I checked the InsUnits system variable (it sets the units in the drawing) I found that they were correct, but the drawing would not insert correctly. I checked the DWGUnits setting, set the value to the correct units, and this fixed the problem."
Notes from Cadalyst Tip Reviewer Brian Benton: When inserting a block or referencing another DWG file, the InsUnits setting must be set properly. This tells AutoCAD that the current file is drawn at a specific unit type. When other files or blocks are inserted or referenced and they are set to the proper units, AutoCAD will automatically scale the inserted file accordingly.