Tricky one - I'm all for calling "relatives" by whatever the parents want, I get out of my tree when people refer to themselves as Auntie / Uncle so and so, when they are infact MIL's best friends next-door-neighbour for example!
Would you settle on a compromise like GrandadXXXX or a pet name? My friends stepdaughter calls her Plum, sounds a bit like mum but not enough to upset her biological mum. Could she call him Grandy or some variation on his own name - enough for it to be a bit special but not enough to sound like grandad?