The data validation dropdown is limited to 8 rows, and can't be changed.

If you can use macros, there's a sample file here that provides a
combo box from which you can select one of the values. In a combo box, you
can set the number of rows in the dropdown list. There are instructions
here:

  http://www.contextures.com/xlDataVal11.html

The data validation list will open with the cell's entry selected in the
dropdown list, so you could type the default value in the cell. Then,
users can select a different item if necessary.