Answer: It sounds as though you have your work cut out for you, but as a labor of love, the rewards will be well worth the effort! I suspect the grey substance you're finding is indeed moldy fibrous roots. I'd pick and pull all of the dead growth out of the area, then spread 4-5" of organic matter over the entire bed and dig or rototill it into the soil (to a depth of 8-10"). This will loosen the soil and make it nutrient rich. Then rake it smooth and plant. You can plant now through October and the perennials you plant will become well established over the winter months and be ready to spring to life in March or April. After planting, spread a 1-2" layer of organic matter over the bare soil to help suppress weeds. I think the area would be perfect for a Tuscany inspired garden. I'd plant compact Gold Coin Daisy (Asteriscus maritimus ?Compact Gold Coin?); Lavender Cotton (Santolina chamaecyparissus); French lavender (Lavandula dentata candicans); Tuscan Blue Rosemary (Rosmarinus officinalis ?Tuscan Blue?); Brilliancy Rock Rose (Cistus x?Brilliancy?), and, if room permits, a Little Ollie Dwarf Olive (Olea europaea ?Montra?). If you want additional color, you can plant seasonal annuals.
Hope the above provides you with some ideas!
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