I think there's a difference between participating in a lie and remaining neutral in the face of one.
Basically, your mother doesn't have to agree with you, or think you are right. She certainly doesn't have to lie to Little Knit. But I think it is entirely fair to ask her to not bring the subject of Santa up at all. There is no need to volunteer the truth to a small child.
If Little Knit asks her grandmother directly if Santa Claus is real, she doesn't have to say yes. She can, in fact, say no outright. But otherwise, she's not the parent, and she doesn't get to ruin your parenting decision just because she doesn't like it.
I think that's kind of the risk you run, though, Knitterly. I think it's reasonable to ask your mother to be silent on the subject of Santa Claus as long as nobody else is bringing it up. But I don't think it's reasonable to ask her to give a less-than-honest (to her) answer if Little Knit ever does ask.
Until that point, though, I think you should tell your mother that this is a decision you and your husband are comfortable with, and to please simply keep silent about it around Little Knit. Since you aren't willing to forgo the family celebration, you can't really deliver any real consequences if your mother doesn't do as you ask, so I think you'll have to think about how you will deal with that, too.