Skip,
I apologize.
Just to be sure, I checked the Help on Data Validation. I got the following:
If the list of valid entries is in another worksheet or workbook, define a name for the external data on the active worksheet. In the Source box, you can then refer to the name on the same worksheet. For example, if the data you want to use in a formula is in cells A6:A12 on the first worksheet in a workbook named Budget.xls, you could define the name ValidData on the active worksheet to be =[Budget.xls]Sheet1!$A$6:$A$12 and then enter =ValidData in the Source box.
So the caveat does not apply if you define a named range on the current sheet as the external sheet or workbook range.
Hope this helps,
Pete