Yes squirrel poop can be bad for dogs because if the squirrel poop happens to have some sort of diseases contained in it then the dog could become sick.
So if you're dog is eating squirrel poop you should keep them away from the squirrel poop to prevent them from becoming sick.
My dog ate some squirrel poop before and became really sick and had to be taken to the vet and he had come down with some disease which I forget but he made a full recovery.
But you should never allow the dog to eat squirrel poop, rabbit poop or any other poop because it can make them sick and could possibly kill them.