Explanation of the name
It occurred to me (not sure if I have read it somewhere) that the word "grey" refers to their middle "political" position between the Light Elves and the Dark Elves sceptrum. Eg. they were Umanyar, but were not Moriquendi either. They were not Calaquendi, but their King was (and their queen a Maia) and considered themselves the most blessed and advanced of the Umanyar. This nomenclature can also be seen in "Middle Men".
Of course this explanation of "grey" is compatible to the Noldorin point of view. In "Quendi and Eldar" the Sindar seem to be chauvinistic, did not consider themselves "grey" or "middle", as the Noldor and the Teleri were seen as deserters. The Sindar even called themselves "calbin". In that case "Grey elves" is not Sindarin nomenclature, it might even be seen as offensive (like the word "Halfling").
Can the above be backed up or contradicted? Sage 11:10, 10 November 2013 (UTC)
-Unfortunately I don't know if my assumption is based on something concrete I read, but I too always got the impression that 'grey' implied that they occupied a middle ground to the Noldor: not as advanced as those who went to Valinor, but not so primitive and tribal as the Dark Elves further east.188.8.131.52 18:58, 29 September 2015 (UTC)