After carefully working on my PM text in the hope of being as clear as possible, it has appeared to me that the OP need only explode his block to make his new definition since that is essentially what REFEDIT does when it is asked to edit dynamic blocks. I tried that in my drawing and I was able to explode his dynamic block. He could also use BEDIT. I tried that and it works just fine. If he wants a new block and was trying to get REFEDIT to create it then he can just use Command: -insert <new block name>=<original block name> to create the new block and then use BEDIT on that.
(I wrote the above after I wrote all that follows intended as a PM. I decided that it could be useful to include here instead of just sending a PM)
@cadffm I apologize.
I have been completely ineffective in trying to explain what I mean. I tried to focus on the character of BLOCKs and INSERTs and explain how that relates to the topic of REFEDIT vs BEDIT. I thought it very important to establish what these terms mean as well as what "REFERENCE" means as the foundation for the rest of my comments on the subject. It is not my intention to debate or dispute with you whether REFEDIT was built to edit BLOCKs or XREFERENCEs since both of those are actually just BLOCK entities and REFEDIT and BEDIT are both just block editors. The group code that differentiates an internal block from an externally referenced block is just one integer bit value in BLOCK entity definition.
Notice below that the 70 group code defines the "Block-type":
(from the AutoCAD 2000 DXF reference)
70
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Block-type flags (bit coded values, may be combined): 4 = This block is an external reference (xref). 8 = This block is an xref overlay. 16 = This block is externally dependent. 32 = This is a resolved external reference, or dependent of an external reference (ignored on input). 64 = This definition is a referenced external reference (ignored on input).
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Objects called REFERENCES and objects called BLOCKS both refer to BLOCK definitions defined in the drawing's BLOCK table. If you see them in the drawing, those are NOT blocks! They are INSERTs, discrete instances of a particular block definition displayed in the drawing.
A BLOCK that has a 70 group code that includes the bit 4 is an external reference. Without bit 4 set it is not an external reference. With or without this bit it is still a BLOCK. INSERTs that refer to either an external reference block definition or an internal reference block definition allow using either REFEDIT or BEDIT to edit the block definition in the block table unless prohibited as discussed below. In addition, when an external reference block definition is so editied, that new definition is used to update the external drawing file when the block editor is closed.
Block definitions may or may not have an instance (INSERT) of the block definition in the drawing. For external references that do not have a instance in the drawing, AutoCAD will advise you that it is "unreferenced". That means that there is no INSERT object in the drawing created from the block definition of that xreference. I'm sure you know that you can have many block definitions in a drawing without having anything at all drawn in the drawing. There are only two objects involved to display a "block" or "xreference" in the drawing. In either case there must be a BLOCK definition in the block table and in order to see an instance of them in the drawing there must be an INSERT object that references the definition in the block table.
I hope I have been a bit less confusing in this attempt to explain my meaning and intent. This is the foundation for everything I've been trying to communicate.
REFEDIT and BEDIT can be used on any block with some exceptions: BEDIT cannot be used on blocks having bit 4 set in their 70 group code (xreferences); and REFEDIT cannot be used on dynamic blocks. Attempting to do so will break the link to the original block definition in the block table and create a new block definition (REFEDIT simply cannot edit any dynamic block); and, REFEDIT cannot be used on any non-uniformly scaled blocks; and, there may be other restrictions than these.
It is my understanding that REFEDIT was developed primarily to edit xreferences and that BEDIT was developed primarily to edit dynamic blocks; nevertheless, they are both just block editors. I believe that it is incorrect to conclude that because REFEDIT was developed years before BEDIT that its purpose must have been to edit all blocks and that BEDIT's purpose must have been to only edit dynamic blocks. Either of these two editors may be used to edit block definitions unless specifically prohibited. This is true simply because the only thing that ever gets edited by either of them is a block definition in the drawing's block table.
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