Okay, I ran some numbers through the CR calculator and the Gray Sqaarg comes to Challenge 5 with the 76 (8d8 + 40) hit points if it has a DPR from 15 to 26, which ought to be easy enough to wrangle, it comes.
Let's say its Crush does 2d6 + double Might and it normally applies a Might from 5 (its Strength bonus) to 8 (its maximum). That's a damage of 17 to 23 which falls neatly within the above ranges.
We need to handwave away how the "half damage on save" affects the calculation (it'd increase the DPR, but then a lower Might would decrease it). But Challenge Ratings are not an exact science, especially with a nonstandard approach to combat like this creature.
Actually, come to think of it it'd might be a bit more complex than that. Once a fight gets bloody, the sqaarg might use Seize on the first round and then Crush on the second and third, which'd reduce the DPR a bit. Then again, it could Reflexive Grip someone and get to use Crush all three rounds of its DPR average calculation.
Hmm, maybe we should increase the number/size of dice and use Might instead of double Might for the Crush to make the damage less swingey due to the changes in Might? Like have the Seize do 2d6 + Might and the Crush 4d6 + Might?
Still, the Waxing Might is really the Gray Sqaarg's schtick, so it should really have a significant impact on combat. Don't want to water it down too much.
Oh well, we can worry about it tomorrow…