That doesn't sound good at all, Tom.
Does anyone else have a similar hardware configuration and library size who has updated to iPhoto 5? I'd like to hear how it went.
Here is a note on MacFixIt about the grayed out thumbnails:
One reader, StanT, said:
"I had the gray thumbnail issue show up on one of my two libraries. After a bit of sleuthing, I noticed that some of the subfolders in the library did not have the correct access privileges. After changing those, I relaunched and my
thumbnails returned. This is more likely to happen if two users are sharing the same library."
Thanks Tom for detailing your experience. I hope we can find a fix for the situation, because iPhoto 5, when it's running, is really fun.