You are quite correct. The Dixie Grays are Company E, 42nd Virginia Infantry.
Company epithets like "Dixie Grays" were local designations, used prior to being assigned to a particular regiment-- with a letter designation for the company. The letter designation was not intended to totally replace the local moniker of a company. Colorful names like the Franklin Fire Eaters, the Muddy Toes, the Wise Yankee Catchers, the Tyranny Unmasked Artillery and the Winchester Boomerangs are among some local designations used by Virginia troops.
As for the 42nd Virginia Infantry...
Company A - Henry Vulunteers - Henry County, Virginia
Company B - Floyd Guards - Floyd County, Virginia
Company C - Buford Grays - Bedford County, Virginia
Company D - Campbell-Lee Guards - Campbell County, Virginia
Company E - Dixie Grays - Roanoke County, Virginia
Company F - Leatherwood Fencibles - Henry County, Virginia
Company G - [no local designation, Captain William Wade Morris' Company] Henry County, Virginia
Company H - Patrick Henry Volunteers - Patrick County, Virginia
Company I - Campbell Guards - Campbell County, Virginia
[The letter "J" was avoided, due to its resemblance to the letter "I" in cursive form.]
Company K - Franklin Invincibles - Franklin County, Virginia