How do I set the grayscale values for arrows in xypic?

You can use xcolor package which provides the gray color.

\documentclass[10pt]{article}
%\usepackage{amsmath}
%\usepackage{graphicx}
\usepackage[all]{xy}
\usepackage{xcolor}

\begin{document}
\[\xymatrix{\bullet \ar@[gray][r] & \bullet}\]
\end{document}

You have to specify the color model. You find the syntax in section 13 of the Xy-pic reference guide (texdoc xyrefer).

\documentclass{article}
\usepackage{amsmath}
\usepackage[all,cmtip]{xy}

\newxycolor{testgray}{.5 gray}

\begin{document}

\begin{equation*}
\xymatrix{\bullet \ar@[testgray][r] & \bullet}
\end{equation*}

\end{document}

I added cmtip because my eyes bleed when I see the default arrow tips. Also align should never be used for simple equations not involving alignment (and \xymatrix alone doesn't count).