You did not select "Convert to" for any DXF layer I think.
When "Import DXF" screen appears, select a DXF layer, then click on "convert to" box and choose board outline layer. More info can be found in DipTrace tutorial.
It turns out that the "NEW/ADD" drop-box was my problem, it's defaulting to "NEW", when I changed it to "ADD" it imported my DXF shapes as expected.
Weird behaviour really, when one is already in a project and expects to import (add) a shape because they selected "Import DXF" from the menu, one would expect "ADD" to be the actual default behavour ...since that is what the user is trying to do.
-- 07 May 2012, 17:13 --
...Change shape layer from top assy to board cutout first. You can do it from shape properties window (right click on it and select properties from submenu). After that, you will be able to change board cutout to board outline. Right click on the shape and select "Convert to board outline" in submenu....
I don't seem to have the context-menu item you name "Convert to board outline"