You may not have heard the term "condemned" before, but you've probably heard "rejected," "our of tolerance," "out of spec," "unacceptable," "does not meet manufacturer criteria," etc.
Absolutely a part may be rejected if it isn't operating within limits, exceeds wear limits, etc. However, your story here is far from complete.
Idle propeller speeds aren't spelled out in the type certificate data sheet for the airplane. The limitation comes from the pilot operating handbook or AFM. Generally these will include a minimum speed which is typically 900-1,100 rpm, except for feathered operations. As these speeds are below the governing range of the propeller governor (next position is feathered), the only two things that can control idle normal range speed are the idle NG and the propeller stop limits. If the limits are set incorrectly such that prop pitch is excessive and unable to achieve minimum idle RPM...then it's out of tolerance and either needs to be adjusted/repaired, or rejected.
You noted that you've looked in the maintenance manual. Did you mean the aircraft maintenance manual, engine maintenance manual, propeller maintenance manual, or any supplemental STC data?