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The problem is that you want the source for the data validation to be a sorted list. The SORT function returns an array, not a range, so you cannot use the SORT formula directly as source for the data validation list. Excel refuses to accept the formula.
Perhaps Microsoft will allow formulas that return an array to be used in a future update, but I have no idea whether that is in the works or not.
This problem does not occur if the formula only involves functions such as INDEX, OFFSET, MATCH and COUNTA. You can then use the formula in the Data Validation dialog itself.
The workaround is to place the formula in a cell, and to use the spill range of the formula as source.
That works fine for a single cell, but if you want to do this for multiple cells in a column, you cannot place the SORT formulas needed in a column: because the cells are below each other, the spill ranges of the SORT function would overlap, causing the #SPILL! error you saw.