Can I create picklist values dynamically by Workflow updates?
In a custom object picklist values need to be populated with Account Names dynamically after creation of an Account.
Please let me know this.
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The simple answer is: no, this is not possible by workflow updates.
In order to do this, you will need to write an APEX trigger that updates the object metadata. This is described e.g. here: Adding values to a picklist using apex
Alternatively, if the picklist only needs to be shown on a Visualforce page, you could generate the picklist values there dynamically upon loading the page. This is described in many online examples, e.g. here: http://www.forcetree.com/2009/06/dynamically-add-values-to-picklist.html