Oh yes, same here. This was long before I heard about ‘NPD’. I would tell my kids, ‘gma is just that way, she gets things wrong’. I said it calmly and matter of fact. I think adding the 'gets things wrong' really did help them. They did accept that. They would come to me and ask for verification when she said something out in left field. They were about 8/9 when I figured out I absolutely had to be there with them when she was around, otherwise she’d traumatize my son. But I only buffered and shielded, minimized impact. We didn’t have the words like your daughter to explain ourselves. But in order to see grandpa, had to go through her, and grandpa is loved dearly.
They moved south, my kids got older and now my son is down there. I had thought his being older would have helped. Well, that works with my daughter (who called her a princess to her face, and is now, needless to say no longer gma’s favorite), but, having recently just realized the connecting dots, I’ve been trying to help get my son more independent. He’s more susceptible, more impressionable, and now I see not only has she not changed (never will), but realized how negative an impact she has. I will probably never know some of the damaging things she’s done to them, heck, I’m just now realizing her impact on me.
Your daughter is coming to you for validation of her feelings, of seeing something wrong. It's great when children see through the bull. Keep giving her voice, and good luck Beth.