ARCDFAD requires all coverages in the source workspace to be named DSnnnL or DSnnnP. The nnn part of the name must be a number, such as 01 or 001. For example, DS001L.
It appears there is no limit to the length of the number used in the DFAD naming convention. However, more than 4 digits may become a problem when performing other ARCDFAD pre-processing tasks.