:help 'fileformats' (note the s at the end).
Here's a script to do the automatic reload for you (between DOS and Unix still unfortunately):
http://vim.wikia.com/wiki/Automatically_reload_files_with_mixed_line-endings_in_DOS_fileformat
This version uses a timeout in milliseconds on a search() rather than limiting by number of lines.
Jeroen
The problem wasn't "showing a ^M", that's pretty common. The problem was that EVERY line was terminated ONLY by a ^M and there were NO linefeed characters in the file at all, so the file was showing as one long line with a bunch of ^M characters.