From the man:
--dh file
File containing Diffie Hellman parameters in .pem format (required for --tls-server only). Use openssl dhparam -out dh1024.pem 1024 to generate your own, or use the existing dh1024.pem file included with the OpenVPN distribution. Diffie Hellman parameters may be considered public.
You need to put the dh into a file. Most likely without the XML tags and, perhaps, without the header. Then name that file with the --dh parameter. The openVPN process must have read access to this file, for obvious reasons.
HTH
Chris
