You can play Amazing Grace in whatever key you want. What's important is the main structure (chord-wise) of the song, and to state the main melody before going off on a tangent. Depending on the singer I was playing for, I've performed it in C, F, G, and Bb before, and I've practiced it in all keys. As for the scales you should use, Amazing Grace is a very straightforward song harmonically, so you can pretty much use either the major scale you're playing in or the major pentatonic/blues scale, or play the parallel minor pentatonic/blues scale, with caution. I think you should definately listen to a lot of versions of the song and be able to play it clean and play the melody unaltered before attempting to redo the song - you don't seem very familiar with the song.

In F, for example (melody in parenthesis, chords above):

F Bb
A - ma - zing grace, how sweet the sound, etc.
(C) (F) (A) (A) (G) (F) (D) (C)


From there you can alter the chords and melody, but make sure you know the song first. I like, for example, to play A(Fadd9)mazing grace (Eb/F) how (Bbadd) sweet, the (Fmaj7) sound, etc. with ornamented melody.