Well yes .. and .. no
Wiht MySQL 5 you still need to have created an index on the referenced column (in the other table) in advance. But the index on the FK-column itself is created by MySQL itself if it is not there in advance.
So when you try to reference a column in another table that has no index, building the FK would fail and an error msg. should show. But it could be more specific.
But actually SQLyog DOES NOT prevent building the FK if the index on the FK-column is not there!