People are walking the streets day in day out with camera phones... you are on cctv everywhere you go..
That day you were at the beach there would have been thousands of people around you taking photos of their own kids, and its very possible that your kids are in the background of that photo, anywhere on the internet. It is not putting your child in danger.
If some pervert wants to cut and paste your childs face onto the body of another child, you are never going to know and it could be happening right now... there is nothing you can do about it and your child is not aware of it or being harmed by it. So sitting worrying about it is not going to make that any different.
A grandparent wants to show off innocent photos of her grandchildren to others. Is it really worth creating an atmosphere, causing bad feeling, and potentially ruining a real life relationship, for the sake of being paranoid about something that is most likely never going to happen.
The internet has not created a whole new wave of paedophiles. Your young children are no more at risk now than they have ever been in the past.
Older children ARE at risk if they put themselves at risk by accepting friend requests and chatting away with strangers, and by putting risque photos of themselves on their profiles. (and there are many silly little teenage wannabe lolitas who do this).