I remember that the reason my coworker had said that they couldn't use local variables declared anywhere in functions for their Windows code was due to not supporting C99, but maybe that was just due to some external constraint rather than a Windows-specific one (like some customer needing them to support pre-C99 code or something).
Even C89 supports block-level variable declarations. I think many C programmers are unaware of this, though, and mistakenly think that declarations are function-level only.