So I downloaded the Nirvana dlc and finished the true episode 18 but how do I move on to part IV now that I have the dlc? It doesn't seem to appear on the episode menu and I don't know where else I can activate the dlc from.

Hm, I just loaded it up from the chapter select. Maybe delete and re-download?

Iirc you need to have a certain amount of S/A ranks on the episodes. I had to go back and replay a few episodes to raise my rank.

Well I needed 5 S ranks in order to get the true episode 18 and I got them. If I do need more then the game didn't mention it. 
 
Edit: I think I figured out what was wrong. It turns out that my copy of Asura's Wrath is the EU version and will not work with the North American DLC. Damn it.