I can merge 3-5 images absolutely fine, and get a perfect image at the end of the edit, when I save it a grey image is produced. I've reduced the quality from 12 (60mb) to 3 (4mb) no joy.
I've moved this from the Using the Community forum (which is the forum for issues using the forums) to the Photoshop Elements forum so that proper help can be offered.
What OS and version of Elements are you using? Lowering the size of the file may not fix a problem with the actual resolution. What is the actual pixel size of your edited image? Does it display properly in the Editor? And are you just seeing the "grey image" in the Organizer? Take a look at this article about maximum image sizes. Try reducing the resolution of the edited image, using the Image>Resize>Image Size menu. If that does not solve the problem for you, we need more details (and a screenshot) of your grey image.