I'll switch to 1.1.0 alpha as well (running Windows 7), but I'm just waiting for the next StreamedMP release that will support this version. They are waiting for the next Moving Pictures, so I hope that bug will be sorted out soon.
Since this thread is very long I would like to ask how the actual status for this prob is? At the moment I am using Vista Media Center with my Nvidia ION and I also got this Black is Grey problem. For now I am using ajusted color settings in the Nvidia Control Panel.