I've always heard that the classic "grey" alien resulted from descriptions provided by "contactees" (not "abductees), Barney and Betty Hill. Sketches of aliens they supposedly met were made from their descriptions of the event, and likely presented the first concept of what "men in flying saucers" were supposed to look like. These sketches were derived from information collected during hypnosis and can be found on this page http://slappedham.com/betty-barney-hill-alien-abduction/.

Of course, I am not suggesting that Barney and Betty Hill were actually abducted. That does raise the question of exactly from WHERE did they get their concept of what an alien looks like. Apparently, their descriptions closely match that of alien creatures from an episode of the TV show "The Outer Limits" aired about two weeks before their abduction. So ultimately, this could be the source of what a "grey" is supposed to look like.

This isn't exactly the result of artistic interpretation but one psychologist has put forth the idea that alien abductions are actually hallucinations where the abductees are having memories of their mother's face when they were being breast fed. When babies are born they can't see well, and their resulting vision recognizes their mothers face as rather alien looking. Regardless if you believe it or not, it's an interesting theory.

blogs.discovermagazine.com/badastronomy/2006/08/09/my-mother-the-alien/#.Vk0srPgo7qA

In 1893, H.G. Wells published an article in the Pall Mall Budget with the title "The Man of the Year Million." Wells described gray men--mostly brain--so large heads, big eyes, no real need of a mouth because they absorbed nutrition directly instead of chewing food, thin arms and legs because again, mostly brain.

It was accompanied by this illustration.

This idea of creature initially gained traction because of a short piece making fun of "The Man of the Year Million" in the New York World, one of the frontrunners of yellow journalism, that same year. For his part, Wells would go on to use similar ideas to help develop some of his creations in books counted among his most famous today.