No, Microsoft doesn't have any "banned fonts".

Windows XP (along with Windows 2000) enforces more rigorous standards regarding
fonts' internal form. Many fonts that had minor technical flaws and were
acceptable to earlier versions of Windows now get a message such as "not a valid
font file" or "font file may be damaged" when trying to view or install. It is
also possible that in transfering your fonts to the new system that you actually
did damage the files in some way.

With some few exceptions, fonts from major font foundries (Monotype, Adobe,
Bitstream, etc.) do NOT exhibit this behaviour. Many older freeware and
shareware fonts are affected, including those available on CD collections of 500
or 1000 fonts for $4.95.

This can affect both Truetype and Type 1 fonts.

The fonts need to be repaired or replaced with newer versions. The repair can be
done with just about any contemporary font editor, and requires nothing more
than opening the font and then saving it again. (Some programs use the term
"generate font" rather than "save").  Most of Pyrus' programs - ScanFont,
TypeTool, FontLab, and Transtype will do this. I believe that the inexpensive
"Font Creator" will also fix these fonts, and there are probably a few more.I
would NOT recommed "Softy" for this purpose. It may lose some other necessary
font data.

  - Character

As a PS to Character's post:

You might be interested in Microsoft's "Font Validator" tool. It checks
the font file for errors and "sanity". It will not tell you which
particular error caused the install problem nor how to fix it. It is
intended for developers but anyone can get a copy. However to get it,
you must, "Visit the Microsoft Font Validator Community site and apply
to join." It is a simple, relatively pain-free process. Note that you
will be asked to join a list server and get a stream of correspondence
from it.

Just though you might be interested.

Link
http://www.microsoft.com/typography/FontValidator.mspx

Tom
MSMVP
Windows Shell/User