Strange. I've just created a font which works. Here is a complete Open Watcom project (OW 1.

. The project contains:
- myfnt.fnt - the system proportional font which Font Editor starts with. I simply opened Font Editor and saved the font.
- myfnt.c - the dummy source
- myfnt.rc - the resource file for the font
- other files - created by Open Watcom.
I copied all the files above to the (future) project directory - keep all files in the project directory because resource compiler is a bit silly and has problems with finding its source files if they are elsewhere. I created a new project, myfnt.wpj in the directory, selected 32-bit DLL and added myfnt.c and myfnt.rc to the project. Then I make the target and renamed myfnt.dll to myfnt.fon. I was able to add myfnt.fon to the font palette. The font works.
I also noticed that I made what I didn't want to do
Rename the font before saving it in the Font Editor. Otherwise, you replace System Proportional font with your one when you install it. Well, doesn't matter too much because it's the same font.
Therefore, creating fonts seems to work. The guilty one can be the Font Editor.