So I have not found out anything about this anywhere so had to post.
Background info:
I had completed House Hlaalu quests, Morag Tong quests, Imperial Legion quests and all this time I could enter Caius Cosades' House anytime, no problem. Over time, I kept storing every unique item I collected. Now, I am at the final Main quest stage and have talked to Vivec.
The bug:
I just wanted to store one final item and I try to enter and the grey screen appears. The direction bar is there as well as the + mark at the center of the screen. But I can't move anywhere nor can I go back outside, I have to restart a load. This had happened once before and in that time I had waited for some time and it worked but NOT this time. I tried switching HDR off, doesn't work. This problem does not happen anywhere else. I do not have many Morroblivion mods. Anyways this is my mod list:-
Active Mod Files:
[spoiler]
00 Oblivion.esm
01 Morrowind_ob.esm [Version 0.65]
02 Unofficial Oblivion Patch.esp [Version 3.5.7]
++ Oblivion Citadel Door Fix.esp
03 DLCShiveringIsles.esp
04 Unofficial Shivering Isles Patch.esp [Version 1.6.0]
05 DLCHorseArmor.esp
** DLCHorseArmor - Unofficial Patch.esp [Version 1.0.9]
06 DLCOrrery.esp
** DLCOrrery - Unofficial Patch.esp [Version 1.0.7]
07 DLCVileLair.esp
** DLCVileLair - Unofficial Patch.esp [Version 1.0.11]
08 DLCMehrunesRazor.esp
** DLCMehrunesRazor - Unofficial Patch.esp [Version 1.0.8]
09 DLCSpellTomes.esp
++ DLCSpellTomes - Unofficial Patch.esp [Version 1.0.1]
0A DLCThievesDen.esp
0B DLCThievesDen - Unofficial Patch.esp [Version 1.0.15]
0C DLCThievesDen - Unofficial Patch - SSSB.esp [Version 1.0.14]
0D DLCBattlehornCastle.esp
0E DLCBattlehornCastle - Unofficial Patch.esp [Version 1.0.12]
0F DLCFrostcrag.esp
10 DLCFrostcrag - Unofficial Patch.esp [Version 1.0.10]
11 Knights.esp
12 Knights - Unofficial Patch.esp [Version 1.1.8]
13 Oblivion_Character_Overhaul.esp [Version 2.03]
14 NAO.esp
15 RoadLights.esp
** OCO DLC Faces.esp [Version 1.3]
++ OCO_Eyes_Fix.esp
16 Enhanced Vegetation [125%].esp
++ Enhanced Vegetation SI.esp
17 Morrowind_ob.esp
++ Morrowind_ob - MorroblivionTreeReplacer.esp
18 Morrowind_ob - Conversation.esp
19 Morrowind_ob - UCWUS.esp [Version 1.5.1]
++ CWU-OnSelf-HotFix.esp
1A CyrodiilTransportationNetwork2.esp
1B Morroblivion - Silt Striders.esp
1C Morrowind_ob - Chargen and Transport Mod.esp [Version 12]
++ Ak- Morroblivion Maps.esp
++ morrob_tarvyn_faren.esp
1D Bashed Patch, 0.esp
[/spoiler]

We are no longer supporting v065, but what you are describing is an Oblivion bug. Google is an amazing tool:
https://forums.nexusmods.com/index.php?/topic/893699-oblivio...
https://gaming.stackexchange.com/questions/30737/all-is-gray...
Thanks for your response, have put more than 100 hours on the mod, many more to go, loving it.
I have googled and I don't think it is the same problem as I mentioned that it happens only in one specific area, but thanks. The problem seems to go away after I wait for five or six days and NOT save after the wait.