While O'Neill was Leicester manager, Grayson won the club's player of the year award in 1997 - the season that they won the League Cup.
Midfielder Grayson, ironically, went on to play for Villa after that glorious campaign. After his playing career finished, Grayson quickly went into management at Blackpool before switching to Elland Road.
Leeds boss Grayson, whose side triumphed 1-0 at Old Trafford on Sunday, is a boyhood fan of the Yorkshire club and has led them to the top of League One.
"Simon was always very, very interested in the game," said O'Neill. "He played with great enthusiasm. I have never forgiven him for leaving Leicester to go to Villa. Only joking - I have but it took a long time for me to forgive him.
"He has done fantastically well, really brilliantly. I am delighted for him because he is a genuinely great fellow and he has the potential. He went to Old Trafford without any great fear and they went on to win that game."