You are making assumption after assumption to prove a null point.
Trust issues: Speculation
Requirements of the inspector: Assumption with no factual information
Inspector has to approve the format: Again speculation.
Let me make some assumptions as well, since only the OP is the only one who knows if my solution can fit his needs (not yours).
My scenario:
Perhaps 'inspector' is short for Building Inspector as in a an authority to which you submit drawings for approvals to construct.
Perhaps this particular inspector is notorious for stealing person's designs, or custom blocks, or whatever Mr. OP created that he does not want Mr. Inspector to have access to.
Perhaps Mr. Inspector insists on dwg files so he can have easy access to free content every time a draftsman or architect submits drawings.
Perhaps he claims that PDF files are inadequate for him to get the dimensions or areas he requires, so a CAD file is mandatory. So, by sending a .dwg file (not marigolds) with geometry that can be snapped to, and whatever information required can be accessed, you have met the inspector's instructions, but alas, your content is safe. He cannot in any way request an editable cad file, because he has no grounds for such.
There. I've also made assumptions that can justify my solution. Now the OP can decide for himself if your "It's impossible" is sufficient, or if ".dwg with a dwf underlay" can work FOR HIM.
If the solution cant work in his situation, it may help someone else. At the end of my post i'm sure i said "Hope this helps someone, somewhere in the world"... Meaning if it works for you, use it, if not, don't.
It's friday night. I've got better things to do than dispute the nuances of xrefs. Do enjoy your weekend my friend.
Cheers
