For example.. lets say a brand of diet pills were banned in google adwords named "xoxo diet pills".. meaning you can not use that keyword to send your site traffic..

Would it be harder to rank for "xoxo diet pills" normally in google since it's a banned adwords keyword, or would it make no difference?

a good way to test would be to find a closely related search term. then see what the search results return for both queries. then evaluate the top 10 sites for each search term and judge for yourself how much effort has gone into ranking them.

I don't think the fact that the term is banned in AdWords adds any additional difficulty to ranking the term. Sure, it may be harder to rank it than most keywords, due to fierce competition. But again, that does not necessarily entail any added burden from Google's side.

I guess not.

If a term is banned from Adwords, it would still be possible to rank in the search index.

Like, if a site is banned from Adsense, it doesn't mean you can use Adwords to promote that site.

They are not interlinked IMO.