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I do have a time based workflow set on leads and when we try to convert them it throws an error

RECORD_IN_USE_BY_WORKFLOW, Unable to convert lead that is in use by workflow:

To overcome this i will be making an update on the record to make the entry criteria to fail in workflow.

My question is that when the time based workflow is put in a queue, will it be removed from queue if the criteria becomes false.

In my workflow i have the Evaluation Criteria

Evaluate the rule when a record is created, and any time it’s edited to subsequently meet criteria
5

Short answer, yes, if the object is in a time-based queue, and its criteria changes to no longer fire that rule, it will be removed.

Longer answer, this article details the common approaches to the problem you're seeing and may give you some ideas for other solutions to the problem.

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