Mike,

Yes, CATIA is upward compatible only, so you won't be able to open a R18 file with R16. Your STEP conversion is a good workaround, but there are some limitations as there are with the DOWNWARD COMPATIBILITY utility (TOOLS + UTILITY). You should pick one release and do everything in that release.

Here's a recent post from someone with a similar question:
r17 parts in r16...options?