iPod touch SAFARI only showing a gray screen when clicked on. What can I do?

Have you tried restoring?

Typically, a restore fixes most software problems.

Does it show the gear and the word "Connecting..."?

Before taking the drastic step of a restore, I would actually suggest clearing the Safari cache/history/cookies, or restarting the iPod itself. To clear the Safari items, go to Settings->Safari, scroll to the bottom and tap each button individually. Then try opening Safari again. To restart the iPod, hold the sleep/wake button for 4-5 seconds until the "slide to power off" bar appears at the top, slide, wait about 15-30 seconds, and then hold the sleep/wake button to power it back on. Then try again.

Took a screenshot of when I saw this issue after upgrading to 3.0:

I am also having that problem right now with my 3rd gen itouch.

I tried to delete all the items on safari and when i went back to it, it still showed up as a gray screen. However, after restarting my itouch I found that the safari was working again. Hopefully it has worked out for you as well.