This pretty much indicates that neither of your files is actually compatible to support this feature. AI artwork turning grey means you used a raster-based feature like e.g. complex gradients or pattern fills that cannot be re-created as shape layers simply because they don't have such stuff and similarly attempting to convert a PSD may fail because you didn't correctly create the paths in PS or laso used a feature liek a drop shadow that gets in the way of a successful conversion. To avoid further confusion I would suggest you read the online help on these features and what is supported and adjust your artwork accordingly:
Posting a screenshot of your artwork might also allow us to advise more specifically.