All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger. We ask Allaah to exalt his mention as well as that of his family and all his companions.
The predominant opinion is that it is permissible to dye grey hair but not with black color as clarified in Fataawa 86625 and 83976.
As regards the narration which you mentioned in the question, it is a weak narration and it is not authentic from the Prophet . The narration is reported by Ahmad, An-Nasaa'ee and Abu Daawood . Al-Albaani said: 'This narration is denied.' Moreover, Al-Arnaa'out said: 'It is weak.'
Even if the above narration was to be authentic, it does not contradict the other narrations which say that it is permissible to change the grey hair, as one may understand that the Prophet referred to changing the grey hair with black dye, or that the meaning of changing grey hair, refers to plucking it.
Al-'Atheem Abaadi when interpreting the narration which you mentioned in the question about changing the grey hair, he said: 'Al-Khataabi said: ''It is disliked to change the grey hair with black color but not with red or yellow color…. It was also said that the meaning of changing the hair refers to plucking it out.'