Have I inadvertently hit a button to cause this to appear? I promise you I haven't interfered with any setting to deliberate cause it.
One minute we're racing then the next race and I get a grey screen.
Most odd.
I can't seem to get further than the grey screen although I can run replays and see the initial screen but not get onto the track for a race.
Any help please?

Usually this indicates that some program is using the TCP port already, and you can't have 2 different programs "binding" themselves to 1 port.
Maybe you are running lfs twice, try to select a different port (if you're hosting I guess).

The crazy thing is, I was in the middle of a session, racing head to head with someone and then at the end of the race it went to a grey screen and when I tried to set up a new track I got the error message. I hadn't done anything to cause it unless trawling through some of my replayed races could be called causing it. That is all I remember doing.

Take a look in the setup file(cfg.txt) in LFS directory try change the port to 8080 and LFS may work. If so try find out whats using the old lfs port.