You've just described my own situation Nanban. When my ex-DIL came on the scene, there was an unspoken commitment to support my son is the relationship and to accommodate the alien behaviour she brought with her, such as bragging how much she was spending on the next acquisition like a sports car, extension for a jacuzzi, games room, wine cellar, private schooling for grandson - all bankrolled by my son, who was also supporting her 4 other children. Whenever he said 'no' she became abusive and drunk and she would seek me out to complain about him - he's never here, he's under my feet, he's spent all our money, he won't give me any money. She brought home 9 or 10 pedigree dogs that cost a fortune, and then got rid of them when they grew up, always without agreement by the family and done when they were at work or school. Nothing was her responsibility. By empathising with her and trying to be supportive, she interpreted that as condoning her behaviour and she just got worse - I think she set out to see just how much she could get away with before she moved on to her next victim (there have been three men in the last year who have complained about her).
How difficult to try and keep things on a level when children are involved, because any hint of disapproval resulted in grandson not being available, and she used him as a bargaining tool and a weapon throughout the marriage and after. We would capitulate to avoid denial of access.
If I had challenged her and rejected her behaviour, I would have seen less of my grandson, and I spent years feeling that my integrity was never intact when dealing with her. Just once I said that I didn't like what she was doing in denying my son access to his boy and she put the phone down on me, then sent a series of abusive texts. I apologised, though it stuck in my throat, and gradually gained access again - during this time, my son wasn't allowed to see him at all.
I'm not sure there is any reasoning with with sort of person. All her other children have no contact with their paternal grandparents - 2 sets. As Bags has eloquently said, you don't intervene where you don't have permission, so we just have to accept the boundaries imposed on us, or have nothing to do with them. My son was a victim of her abuse and we were helpless to change things as long as he gambled on staying in the marriage for the sake of his son. Thanks goodness things have moved on now, and my grandson is having more say as each month goes by, so he sees lots of his dad now. (I still refrain from telling her what I think - she would start all over again).