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How do isolate a certain item in a photo and keep it color while setting everything else to grey scale?

You can use the lasso tool draw around the object you want to isolate, fine tune the area using the magic wand. You might also want to feather 2-3 pixels as well so it doesn't appear so harsh.
Then, once you have everything you want selected, click on SELECT and INVERSE - that will select everything else outside of that object.

Now, go to IMAGE -> ADJUST -> HUE/SATURATION and set the saturation all the way to the left to 0. That will get rid of all color from the area selected.

Hope that helps.

You can also use layers. There are a ton of blogs and articles about how to do this and make it look decent.

Essentially you take a picture and copy it to two different layers. Then hide the bottom layer. So now all your see if the top layer. Set this layer to black and white, you can adjust the colors etc. Then use the eraser tool to remove the bits where you want the color parts to come through. Once you put the other layer back to visible the parts you cut out of the top layer will show through from the bottom later and be in color.

I like doing it this way because it's easier to manipulate the colored layer at any time, so you can come back later and change the colors etc.

That's a good idea - much easier to edit that way than my method.