You absolutely can use dynamic mics for stereo, though it may not give quite as good results as with condensers. Dynamic mics have a somewhat more unpredictable phase response especially off-angle, which can make the spatial perception feel off. But simple XY-pattern (which relies mostly on amplitude anyway) works well, as does AB with widely spaced mics or close to the source (both of which causes the natural amplitude- and phase separation to dominate anything the microphone imperfections introduce).
Yes, dynamic mics are usually used at close distance. They are not as sensitive as condenser mics, so when picking up a quiet source at distance you need to crank the preamp gain, which raises the noise level. But for recording e.g. a brass band, this wouldn't be a problem, and with good preamps even a quieter ensemble would be ok.
On top of that, the general issues apply as well of course: dynamic mics have difficulties capturing quite as crisp treble frequencies as condensers. But again, whether this is a problem depends on what source you're picking up.