Now it is possible to use form field in the criteria of lookup fields. This will help creating dynamic drop down fields whose values depends on the value given for the other fields in the same form.

Refer this sample application implemented using this feature. 

It contains three forms Country, State and Registration.  Registration form contains two lookup fields Country and State. The criteria "Country == input.Country" for the lookup State in the Registration form will update the States based on selected Country.