So I've figured out the following so far (running Monterey 12.0.1)
Some files in the directory are greyed out but some are not, the permissions and owner/group are the same for all, so it isn't that. If I move the files to newly created directory, the issue persists. Same files stay grey no matter where I move them. However, if I *copy* the files, the copies are *not* greyed out.
When I right click and do "Get Info", the only difference I see between the greyed out version and the non-greyed out copy, is the "Name & Extension" field, which is greyed out for the original (not copied) version of the file.
All such greyed out files seems to be from my Downloads folder, meaning at some point I have downloaded them. So I'm wondering if this is some sort of protection on downloaded files (to avoid executing downloaded virus code) that has gone wrong and is somehow affecting the file upload popup window.