"I'm still not seeing where Grandma has made a habit out of undermining the parents."
Not relevant. She's made a habit out of lying to them.
"They confess to sister what they did."
This is the pivot around which my argument turns. Your parents confessed and dealt with the consequences, which goes a long way toward restoring trust. The LW's mother hasn't and shows no intention of ever doing so.
"So I stand by my earlier statement. If this is pattern, then all of the parents of her grandchildren should restrict access. But if this is a one off, then a strong discussion with her about religious choice is in order before she is allowed unsupervised access to any of the children."
She'll do something wrong and then lie to cover her tracks, and the LW knows it, so he'll never have any way of knowing if it's a one-off or a pattern. That's how trust works.