Hi Iahunt,
I'd like to second Nic and Bunny's thoughts. And I'd like to also say that compassion is something we nice folks like to give to others. It makes us feel good! My Big Lesson of My Life is that I can be nice, compassionate, giving, etc. but it doesn't have to come at my own expense. ("Oh, you say I'm a 'mean' person if I eat my own sandwich instead of giving it to you"????

) Basically, my achilles heel is that I want people to know I am a good person...but I owe it to myself not to put up with BS no matter what anybody thinks. And BTW, I am way more compassionate when people take responsibility for their own pain and get help, vs. exploiting their situation to manipulate people.
Everyone may have a different pain threshold. As an individual, I could play "bullfighter" and let a lot of stuff fly by me. But now with kids it's a little trickier in the ring. The N of my life would take candy from a baby and didn't hesitate to try and manipulate and headtrip my kids. She tried to use them as pawns. She knew I had her number and tried to use my kids' affectionate nature to keep us hooked in an unhealthy situation. Nope. No more.
Before your child gets much older, you might want to consider and evaluate what kind of people you want your child to get attached to. Your child has a chance to develop healthy attachments. IMHO, the child's health comes first. Although you feel compassion for your parents, you won't fix anything by sacrificing anybody else's health.
If someone is drowning, throw them a rope. If they feel insulted and insist they are excellent swimmers, for goodness sake, don't jump in and drown with them!
I'm wondering also if some of the discomfort is wondering if your child will ask someday why there are no grandparents in the picture. Your son isn't currently old enough to know differently, so perhaps it's really about wanting to have a Hallmark family (I still suffer from this

) Your hopes and dreams for your new child are fresh and new. It's really natural to want our children to have the good things we didn't have. I'd place my bet on you to provide those good things (like Love!) vs. your parents. When your child is older, this doesn't have to be an issue unless it is made into an issue. Kids will take their cue from us. If we wring our hands over this arrangement, they will too. If we don't and we're okay confident with our decisions, they will be too.
Perhaps there are other ways to address a lack of healthy grandparenting. You or your child may become good friends with a senior neighbor or coworker that truly enjoys your company. You might someday explain how you feel about your parents, you don't blame them for the way they are, etc., but you care enough about yourself and your child to make sure he or she is treated kindly and appropriately. Keeping it short, simple and honest is the way to go. Kids really can handle it and it can be a valuable lesson in self-respect. Self-respect is not selfishness!!! So, as much as your parents deserve fairness (fairness can be defined differently by understanding their behavior without accommodating it), your child deserves emotionally safe relationships.
We are also surrounded by reminders of extended family during the holidays. Many do get together with relatives to diss the bean casserole. Just as many families celebrate in other ways to make holidays different and special for themselves without subjecting themselves to the jello salad. Some take a trip, some go to the shelter and serve the poor, some decorate their houses to the hilt or have a cookie party with friends. (I guess I am writing this as much for myself as for you, Iahunt

My husband and I just had a conversation this morning to psych up for the holidays

)...My goal this year is to create the atmosphere I desire in my own home. Anything else good is gravy. (Oh, no pun intended!)
I know it's got to be painful to make decisions like this initially, esp. as a new parent. You want to do it "right". Just the fact that you are thinking these things through carefully is a really great sign, no matter what you ultimately decide! You know the importance of it.
Good luck to you and everybody during the holidays. xo, S.