Dale,
Given your large DEM and the error you describe, it sounds like you
may be blowing over the 2 GB limit of the Access RasterStore.mdb
geodatabase. If your RasterStore.mdb geodatabase is at or near 2 GB,
then this is likely the problem. ArcSWAT keeps its rasters in
temporary GRID format datasets during the delineation, then exports
them into a geodatabase when delineation is completed.
Your idea of using a lower resolution DEM is definitely worth trying.
Mike