This bothering you is very valid!!! Where’s the Dad in all this? Does he NOT care about his own children’s state of mind? You can’t force his mother to change her behavior; but, you CAN protect your babies from dealing with situations that damage their psyche (confidence, security, independence, etc).
I was in the same situation with my own bio mother. Two out of three of my babies (now adults) weren’t included in her circle of favorites. What I did was shield my two youngest from her narcissistic behavior while they were too young to stand up for themselves in an unhealthy environment. During this time, the only thing I didn’t do was deny my babies the right to see her, IF that’s what they wanted. I also ensured the visitation was in a neutral setting with me being present. They didn’t ask and she didn’t care … UNTIL they were about 11 & 12 years old. She said she was going to keep everything in a box (birthdays, Christmas, etc), and when they turned 18 give it to them. Said, she would let them know it was because of me they didn’t have a relationship. I called her back the next day and agreed that she could do whatever she wanted as long as she gave me 24 hours notice. I never received a phone call from her since that day (now they’re 26 & 27 years old).
I never spoke bad to them about their grandmother because I knew they’d figure everything out when they grew into adulthood. This was key!!! I could have slammed her and many other adult figures in their lives while young. BUT, all this would have accomplished was them hating me in the future. Children aren’t stupid and should NEVER be treated as if they are. One day … all the puzzle pieces will fall into place regarding how they view each person in their lives. You focus on what you can do to help them grow into solid and independent adults, while allowing them to form their own opinion.
Best of luck to you!