Diammond,
The following formula in the Source field for cell M2 data validation will give you the dropdowns you want without needing all the defined names on worksheet NSR or elimination of the spaces from the dropdown choices in cell A2:
=IF(ISNA(MATCH(A2,ColSource,0)),space,OFFSET(INDEX(ColSource,,MATCH(A2,ColSource,0)),1,0,COUNTA(OFFSET(INDEX(ColSource,,MATCH(A2,ColSource,0)),0,0,100,1)),1))
Towards the end of the above formula you will see 100 as the number of cells examined for possible dropdown values. This is an arbitrary value, and can exceed the maximum number of values you ever expect.
If you have no idea how many values you might expect, then you can use an additional named range ddSource in this data validation formula:
=IF(ISNA(MATCH(A2,ColSource,0)),space,OFFSET(INDEX(ColSource,,MATCH(A2,ColSource,0)),1,0,COUNTA(INDEX(ddSource,,MATCH(A2,ColSource,0))),1))
=NSR!$1:$65536 source for named range ddSource
This data validation is shown in cell M3. Note that you must use ddSource in the data validation because it refers to a different worksheet.
The sample file includes both data validation formulas (cells M2 and M3). It also eliminated the line feed character from cell O2 (used in named range space).
Brad