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?
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.