Does anyone know why I can't choose from a list of states on workflow condition for a sales order? Am I supposed to just type out state abbreviations in Value?

My guess is the operator equal is for comparing strings, which is why the selection would be greyed out

Hmm. It's same for when I put "contains" as well. It does seem like it's treating it like a numeral

Your best bet would be to go the formula route and manually type either abbreviations or the full name (check your preferences or do a test saved search). I also don't get why it can't source from a list of values.