It should be grayed out for ANY progressive scan source, as the setting only pertains to selecting the correct deinterlacing algorithm. It should be available for sources that hit the TV at 480i/60 and 1080i/60 only.
Normally, the Auto setting allows the TV to determine whether a 60Hz interlaced source originated as 60Hz (video) or 24Hz (film w/3:2 pulldown introduced in the telecine stage) and automatically apply the correct deinterlacing method. The manual setting is only there to allow you to force a particular deinterlacing algorithm if the TV is guessing wrong, which typically results in a combing effect.
If the video that is hitting the TV is already progressive scan (whether natively or because it has been deinterlaced upstream by another device), then the setting is irrelevant and would be grayed out.
Unless you see deinterlacing issues with a particular piece of 480i/1080i content, its best to just leave it on Auto anyway... otherwise you will need to be switching it back and forth manually every time a commercial comes on during the movie you are watching on a 1080i network.