I am looking to buy a condo in downtown Dallas, TX. The selling agent tells me we have to deal with their bank, which only offers a 5 ARM. My agent also says I have to go through them. Is that legal? I'd much rather go with a 30year.

IF the seller requires that, he could refuse any other offer if he wants to.

But no, you are free to make a offer on a home or condo though any lender or no lender if you have a large enough check.
But the seller can refuse to deal if his terms are not meet.

But no of course you don't want a arm, if you are looking for a long term ownership, so first I think I would change YOUR agent, if you are using this agent, use another agency to make a offer.