Grey sludge in brand new radiator - what does it mean.

I unhooked the lower radiator hose, and let the water drain out of the radiator and block. Was I suppose to run the garden hose up the lower hose to clear out the block? Does that work?

Going up from the bottom hose won't clean much out of the engine.

The thermostat won't allow the block to be flushed from just putting water through the radiator. I always remove the top hose and the thermostat then do a full flush to make sure everything is removed. I also flush out the heater core separately by removing both heater hoses from the block. You could flush the block through a heater hose connection but you won't be able to get what may be clinging on to the thermostat.

I would hate to see you tear the motor down when it may be something like stop leak or some garbage that is through the whole system.