You are trying to edit a Data Validation List and when you click the arrow keys things turn crazy and annoy you sooooo bad!
me@jaykilleen.com wrote this over 5 years ago and it was last updated over 5 years ago.
Press F2 to toggle between 'Enter' and 'Edit' mode when you have opened the dialog box to change the source of the Data Validation List.
You will default to Enter mode which means that when you use arrow keys it will modify the Data Validation Source with the cell that you are moving your arrow around.
When you hit F2 you will see the very bottom left in the StatusBar change to Edit and now you can use your arrow keys to move around your formula etc without things getting whacky.
It's taken me over 10 years to finally Google this and find a solution to just pointing and clicking the mouse. How unintuitive!! Haha.