Can a former employer deny you cashing in your 401k.

Generally, no. There might be an exception if your 401(k) was heavily invested in company stock, and the company stock itself is restricted for some reason. (This was the problem that affected so many Enron employees, and why they could not cash out their 401s when things were going south.) However, apart from that, it is your decision, not your former employers, to make.

Contract the company managing your 401 directly first, and ask them for an explanation of the rules. If the managing company says that you can and your employer is still trying to say you can't, your employer may be up to something.