Free dining plan has to be booked thru Disney and it usually implied room at rack rate and buying a park pass (there is a minimum number of days, often 2 days pass)
You wouldn't be booking a cash room through MS if you wanted free dining. You'd be booking through Disney Reservation Center. And then there would be no member discount.
As long as you adhere to all of the terms of the "free dining" offer, you can certainly book it. It usually requires a multi-day stay at full rack rate (plus tax) and a theme park ticket purchase.
Being a DVC member has no bearing on "free dining" promos.