Ok, I had to test this to make sure before I gave you advise. If you have your drawing coordinate zone set up correctly for the area of your mapping / design, then when you create a surface from DEM, it will do the conversion for you. The DEM has its coordinate and units recorded in it, so Civil 3D just needs to do the math for you. It just needs to know where to start, thus, you need to have you units and coordinate zone set up.
If you still have problems i would like to test the DEM if you want to post it.