My Blend tool looks terrible, help!

If everything is working correctly in your version of Illustrator then drawing two circles, as you have, and filling one with 80% Black and the other with either 0% color or white will produce the results below:

In the first example I used the Blend Options (Found through Object Menu>Blend) to set up the Smooth Color method. This way will usually provide a blend smooth enough for most uses. The second method used Specified Steps and I (arbitrarily) chose 100. In either case the keyboard command Option/Alt-Command/Control-B will apply the blend after you've chosen the blending method. The third option in the Blend Options Dialog Specified Distance does not apply to what you've asked about. In either of the cases above if you want to expand the blend to live Illustrator art you can select it and choose Expand under the Object Menu.

If your program is not working like this then you might need to delete your Illustrator preference files.

To do so:

For Macintosh Users: With Illustrator closed launch a Finder Window in column view and click on your home folder. With the Option Key pressed choose Library from the Finder Go Menu. Within the Library folder find the following two files and delete them: “Adobe Illustrator <Version #> Settings” (earlier versions of Illustrator might just say “Adobe Illustrator”) and “com.adobe.Illustrator.plist”. When Illustrator is next launched it will create new preference files and the program will be restored to its defaults.

After you’ve reset up the program (make sure that no document window is open) to your liking, it is a really good idea to create copies of your personalized “mint” preference files (make sure that you quit the program before copying them—that finalizes your customization) and use them in the future to replace any corrupt versions you may need to delete.

For Windows Users: Hold down Ctrl + Alt + Shift when launching Illustrator and respond affirmatively when asked if you want to reset.