There is no problem in citing a conference paper in a PhD thesis.
When selecting literature that you want to use in your scientific work, it is not uncommon to take the reputation of the hosting medium (journal, conference, etc) into account. The examiners of your thesis might question the quality of the work that you are citing when it origins from dubious sources. But that holds for dubious conferences, as well as for dubious journals.
There are, however, many conferences with an excellent reputation. And there is no reason why you should not cite papers that have been published there.
Furthermore, when you make use of a work (paper or anything else) that comes from a less established source, you are still obligated to refer to this work. After all, we want things to be verifiable in science. You might even cite a source that you are disagreeing with.
Sometimes, an extended version of the conference paper is published as a journal paper, and then you may prefer to cite the journal paper instead.