|Conditional Formatting will not allow you to look at another sheet, by reference.|
There is only one way I know of solving this problem - and that is to name the range that you want to use.
So, on Sheet1, I have named column C "myColumn", and then in Sheet2, I have the conditional formatting formula =NOT(ISERROR(VLOOKUP(C1,myColumn,1,0)))
And thats the (little known but perfectly functional!) only way around it that I know. (This may not be an issues with versions of Excel > Office 2000. I just don't know as this is the latest version I have)
Hope that helped