I'm trying to use conditional formatting on a cell that is populated via a validation list. It will not format. I try the exact same formatting on another cell which is not populated from a drop down list, and it formats the way I want it to. Does Excel not allow conditional formatting for items populated from drop down lists?

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I can't replicate this. I created a validation range, then had a bunch of cells validate using a list, pulled from the validation range. Conditional formatting worked fine. – Paul Dec 15 '11 at 2:47
What is your conditional formatting equation and formatting and which cell is it applied to? – Hand-E-Food Dec 15 '11 at 2:51
I have a validation list for column G. There are 3 choices for this list (open, canceled and reported). I want to format the cell in red if "canceled" is chosen. I use the conditional formatting as follows: – sarah vac Dec 15 '11 at 3:31
cell value is equal to "canceled" – sarah vac Dec 15 '11 at 3:39
I found something interesting. I can format for other options from this validation list. If I choose "open" it will format as I want it to. Excel does not seem to like the word "canceled" for some reason? I changed the option to read "canceled request" and the formatting is working fine. – sarah vac Dec 15 '11 at 4:42
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My guess it that you had a hidden space in your data validation so that your cell's value was "Canceled " instead of "Canceled". That would prevent your conditional formatting from matching.

For example, if you type in the list of words in the Source field, Data Validation ignores spaces after a comma but not spaces before a comma. The below screen print will cause the problem I described.

Data validation dialog box

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this might actually be the cause – datatoo Mar 3 at 18:10
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