"But seriously, does it really matter? Baptism is not magic. It doesn't make you a Christian if you don't receive the education to go with it. Which a child in Jewish home would not be getting. It certainly is hurtful that Grandma doesn't respect the beliefs of her son and his wife. But that doesn't make her automatically a disrespectful grandparent. She could just be a grandparent with a blind spot."
The baptism doesn't matter at all, because it's a red herring. My take on the whole thing is that she knows that it was overstepping to do it, she did it anyway, and then she's put continued effort into hiding it. That's the start and the end of it. To illustrate my point, simply imagine telling her to admit to what she did. Why doesn't she? The reason is that she knows that the real issue is that she knowingly and purposefully breached their trust because she decided that she knew better than they did what was best for their child. That does indeed make her a disrespectful grandparent, as evidenced by her continued action to hide what she did. Seeing as she's made no effort toward correcting that breach of trust nor showing any remorse for doing it in the first place, I have to say she's untrustworthy and that is quite enough reason never to trust her alone with the child.
"I know grandparents who would never consider deviating from a child's feeding schedule but who would absolutely (and wrongly) baptizes that same child in secret."
This strikes to the heart of the matter. She did something that she knew the child's parents didn't want and wouldn't allow if given the chance, and so she did it in secret and has hidden it from them ever since. That means that she can't be trusted not to do it regarding any given parenting decision, and it's not reasonable to dump that on the LW to try to figure out, especially since he's got hard evidence that she'll do it if she decides that she's right about something and then bury it so he'll never find out. The very existence of the letter shows that the breach of trust doesn't just involve the other family, as the LW himself feels that she's untrustworthy.