Denanbob, sounds like your DE filter is broken, grey can only mean DE getting back into pool, see how it goes over the next week, if it clears up then it just needed to set in the filter.

Nicole, for the first while, your sand is relatively loose since you reworked the equipment over the winter and it needs to pack down, so getting some sand while backwashing is normal, it may be too full, so that could explain 5 lbs loss on backwash...
When filtering, the sand should not get back into the pool, but since it's new sand, the really fine stuff (sand dust) is probably washing through and into the pool.
With a layer (1-2cups) of DE, it will eventually filter out, but will take a while, you could also direct your jet to create a whirlpool effect in the water and the sand should mostly collect in the middle in an area of about 10 sq ft - vacuum that heavily concentrated portion to waste, and continue to filter afterwards, after about 3 days of this, you'll have most of it gone without much water loss.