I got to the bottom of it, but paragraphs would have been nice
OK, look, this lady ain't nice. There are plenty of women from her generation and social upbringing who have far better manners than this. Upper class and rude do not necessarily go hand in hand.
She's an old lady now, and much has to be forgiven for that reason. And I don't think you need much advice because I think you've already got it sussed in your own head. You want to bounce it around, and that's good.
She is in no position to be spiteful, disrespectful or dismissive of you. Imagine if you were from her exact social background. Believe me, she would dislike you more for that, because you would be a real threat, rather than an imagined one.
If she comes out with any more of that crap, tell her straight. Tell her exactly what you've just told us. I doubt that anyone has spoken to her like that in her whole life, and it will do her good. It honestly will.
With regards to her relationship with her grand-children, that might be a tougher call. She's a certain type of woman from a certain type of background ... and I suspect that she will find it extremely difficult to be a warm, loving GM. She probably didn't get much of it herself when she was a child, so finds it difficult, if not impossible, to display the sort of fun-loving affection that children enjoy.
But take no prisoners. Be kind and respectful, but don't be a doormat. Give her some argy-bargy ... I reckon she'll enjoy it!