[SDPhantom]

FrameXML/TargetFrame.lua:285

function TargetFrame_CheckFaction (self)
	if ( not UnitPlayerControlled(self.unit) and UnitIsTapped(self.unit) and not UnitIsTappedByPlayer(self.unit) and not UnitIsTappedByAllThreatList(self.unit) ) then
		self.nameBackground:SetVertexColor(0.5, 0.5, 0.5);
		if ( self.portrait ) then
			self.portrait:SetVertexColor(0.5, 0.5, 0.5);
		end
	else
		self.nameBackground:SetVertexColor(UnitSelectionColor(self.unit));
		if ( self.portrait ) then
			self.portrait:SetVertexColor(1.0, 1.0, 1.0);
		end
	end

	if ( self.showPVP ) then
		local factionGroup = UnitFactionGroup(self.unit);
		if ( UnitIsPVPFreeForAll(self.unit) ) then
			self.pvpIcon:SetTexture("Interface\\TargetingFrame\\UI-PVP-FFA");
			self.pvpIcon:Show();
		elseif ( factionGroup and factionGroup ~= "Neutral" and UnitIsPVP(self.unit) ) then
			self.pvpIcon:SetTexture("Interface\\TargetingFrame\\UI-PVP-"..factionGroup);
			self.pvpIcon:Show();
		else
			self.pvpIcon:Hide();
		end
	end
end

Still looks grey to me. This is from the 5.1 source files for the default UI.