Google drive is greyed out when I try to use it as a local source

Not all file providers support being added as external folders to Textastic.

Currently, this works with folders in "On my iPad/iPhone", iCloud Drive, Working Copy (Git client), and Secure ShellFish (SFTP client).

This is a feature Google would have to add to their Google Drive app.

You can find more information about external folders in the manual at:

https://www.textasticapp.com/v10/manual/integration_other_apps/external_files_folders.html#adding-external-folders

As an alternative you can use Textastic’s built-in Google Drive client to download whole folder hierarchies.