Apple Pages insert equation greyed out after 8.1 update
I had this exact problem too, and after about 24 hours of frantic searching and panic, I found a solution.

Install MathType.  Just the trial is fine.  Open Pages, go into Preferences, and uncheck "Insert equations with MathType."  Without MathType, this option is obviously greyed out and unchecked, but installing MathType checks it by default.

You should now be able to insert equations using the built-in editor.  You can uninstall MathType and it will continue to work, or has for me at least.