I am in Freeside and have to follow Orris to see if I notice anything suspicious, and report back to The King. While we are running, he makes us detour because of some bad looking men. After we run down a side street, we run into a group of men. Orris pulls out his gun.....and then everyone just stands there. No one does anything else. Is this bugged? Anyway to fix this?

Deffo bugged for you, there not suppose to act like that. Should note it played out as it was supposed to for me.

If you havent already reload the game and try again? While http://fallout.wikia.com/wiki/G.I._Blues#Orris does not provide any solutions for the specific problem you have encountered, their is an alternative solution of just shooting Ortis and going from there.