Time for some careful thought indeed.
I think your mother Fuzzyfelt actually made the terrible choice not to love and I think her own comments to you are further manipulation rather than an actual admittance of doing anything wrong. Such people never apologise nor accept any responsibility for their actions.
narcissists are not actually at all good at doing relationships and the men in the narcissists lives are either narcissistic themselves or are gone. A man who stands up to his wife will not be tolerated for long, or will not find his life tolerable for long, and will either leave or be kicked out. Narcissists simply don't have healthy and functioning relationships, and so there is either no relationship, or a dysfunctional and enabling one.
She would have acted differently around your child than she did to you when you were younger. They have adapted their methods to the new situation of you having a family of your own. They know they don't have the same power and control they used to so they usually switch to sneakier methodologies. Which allows you to think that they have changed from what they were when you were growing up. From my personal experience, and from observing the experiences of others, the NPD grandparent will use their grandchildren in the same way they would use an inanimate tool. Without regard for the humanity of your child, that child becomes a tool in the hand of your NPD parent to hurt you. This will always result in moral and/or emotional harm being done to your child as well.
(My FIL is a narcissist and even though he is quiet he is not benign at all and shows no interest whatsoever in anything other than him and the image he projects to others. He undervalues. It has been down to me to protect my child from such influences).
Never ever leave your DD alone with her!. I sincerely hope you have never done this. You cannot and absolutely must not let your DD become her winged monkey!!!. You need to protect your DD from such malign influences.
At the very least now you need to cut down on access between your mother and your family unit.
The actual mechanics of how the NPD grandparent will misuse their relationship to their grandchildren will vary. Generally, they will either over-value or under-value the grandchild as a means to get to you. Often, when they over-value, it is the objective of the Ngrandparent to steal the child from you both physically and emotionally. Ngrandparents are known for so much trash-talking against you behind your back to your own child or children that they want to go live with grandma or grandpa, or the Ngrandparents simply inspire rebellion of the child against you. They steal the hearts of the grandchildren. Sometimes, they will battle for physical custody of a grandchild after their slander campaign against you has won them powerful allies. Many times the Ngrandparent has a lot of extra cash to throw around since they are done raising a family. They may successfully exploit. They can even steal your children's hearts from you when the children near adulthood with promises of money, houses, cars, college tuition, etc. as bait.