Laundry that looks grey after using bluing means one used too much blue and or left tiems too long in the bluing bath.
When properly used, bluing is a tint, not a dye, though improper use will lead to more of the later than former. Bluing acts by canceling out yellow, much the same way as chemcial fabric "whiteners" or OBAs, except that bluing works best on cotton and linen fibers, while OBAs work in theory on all fibers, natural and man made. This principle is based upon the colour wheel and has been in use for ages to counter yellow hair on animals and humans, to paper, to fabrics. One of the main reasons bluing fell out of favour is the fact it only works so well on man-made textiles, and must be dosed/used correctly (see below), to achieve good results. Whereas OBAs simply are added to detergents, bleaches and what not without much problems.
As with many other laundry procedures using bluing takes skill and practice, but is does work when used properly. If it did not, Mrs. Stewart's, Reckitt's Paris Blue, and various others would long have gone the way of the Dodo.
Proper way to use bluing is to add the product (in correct amounts) to the rinse bath, mix well, then rinse items quickly in said bath. While it is possible to use bluing in automatic washing machines, both front and top loading, it takes skill and knowledge to get proper results.
One thing to remember about OBAs is that most if not all are made from floursent chemicals that bind with human skin permanently. Which means after bathing then drying oneself with a towel washed in say Tide, you are covering yourself with flouresent chemicals. Same if you sleep in linens laundered with detergents that contain OBAs. These same chemicals are also made from some very toxic substances such as coumarin, which is also used as a rodent poison.