I think it is absolutely reasonable to be concerned that the house is filthy and that the girl's clothes stink - yes, it will most definitely lead to bullying at school.
Many many children, including me, were passive smokers in "the old days". We lived with my granddad until I was four and he was a chain smoker, and he visited us regularly thereafter. We know now that it is not advisable but, aside from the usual fairly minor childhood illnesses, I was a healthy child and so were my friends, most if whose parents and/or grandparents also smoked.
However, the vast majority of us had clean, dry clothes to wear and decent food to eat in clean surroundings. Being obsessive about cleanliness is obviously unhealthy but a filthy house is, in my view, unacceptable.
Having said all that, I'm not sure what you should do. You don't want to alienate your daughter and her partner in case they cease contact with you and stop you seeing your granddaughter. As your granddaughter grows older if you have maintained a good relationship with her and her parents you will hopefully be able to have her to stay and be there for her if she needs you.
As others have said, would your daughter welcome some help with household jobs?