"She seemed like she was on something," says the source.
Three days later, after several episodes of reportedly erratic and bizarre behavior, Houston would be dead in her hotel room at age 48, just hours before she was to appear at music mogul Clive Davis's annual pre-Grammy party.
Coming off another round of rehab last May, she appeared poised for a glittering comeback – she stars in this summer's film Sparkle – and a triumphant return to the music industry's biggest week, the six-time Grammy winner serving as mentor to young divas.
But after checking into the Hilton, her odd behavior on Wednesday morning was just the start.
The next day, as Houston turned up for rehearsals for Davis's gala, she "appeared disheveled in mismatched clothes," the Los Angeles Times reports, her hair wet with water or sweat.
"The singer smelled of alcohol and cigarettes," the Times reports, adding she "displayed erratic behavior" by "flailing her hands" while speaking to singers Brandy and Monica, then went "wandering aimlessly" around the lobby.
A source tells PEOPLE that Houston was "twitching her nose constantly" and ranting to Monica about what she was apparently supposed to wear to the Davis event.
"I don't wear no blue," she said, according to the source. "I don't want no goddamn blue."
Later, at a pre-Grammy event at TRU Hollywood, Houston joined Kelly Price for a duet of hymns, but her vocals were shaky.
Then, Houston tangled with singer Stacy Francis. After first not recognizing her, Houston "got belligerent" with Francis, The Hollywood Reporter reports.
Francis later didn't deny the episode, saying only to THR, "I have the utmost respect for Whitney Houston and her talent."