Folder in root greyed out in Finder but accessible in Terminal

Easy fix. Open Terminal.app and type the following command:

sudo chmod -R -N /Users/*/Sites
sudo chmod -R 744 /Users/*/Sites

(edit: Added -R to recursively change permissions) (edit: Kudos to ughoavgfhwless for pointing out the -N flag to reset the ACLs)

You will be asked for your password. Enter it (keep in mind it won't show up in terminal). Now, assuming there isn't a more serious issue with your OS X installation, this will correct the permissions on all of the users sites folders. (If you installed OS X on a case-sensitive HFS partition, you need to make sure the case of the command matches the case of the directories. If you don't know about this, it's safe to assume you can ignore this and proceed with the above listed command.)

Good luck and happy chmoding!

It sounds like you are using a non-server Mac to act as a server. Is this correct? If so I highly advise you to upgrade to some version of OS X Server.

If I am correct, your issue is caused by using standard Mac (or POSIX) permissions to handle your file share. This is the only option you have for a standard Mac when sharing files. This causes permissions issues, whether you are using AFP or SMB protocols (though SMB is worse in this respect).

If you can upgrade to OS X Server, you will want to first clean up permissions on the folder you wish to share (thus fixing any existing issues). Then create users & groups to model your organization structure. From there you will create a new file share using the Server app. Don't change any of the default permissions it gives. Instead click the "+" button to add a new Access Control Entry. This is a special type of permission that OS X Server can grant, and it resolves all of the permissions issues a standard Mac will give you in such a setup.

Peachpit Press offers a great write-up of all of this in their OS X Server manuals as well, though I couldn't find anything to link to directly. I hope this helps.