If Friend was solely hosting--providing venue, footing all the bills--I would say that no one but the GOH gets any input into the decorations etc., unless we are talking about a situation so extreme as to be offensive or dangerous. When I saw the subject of the thread I too thought it was going to be something worse than tacky colors/patterns--I was picturing an "adult-themed" baby shower for a very conservative mom, for example, or one of those horrible "baby being born" cakes from CakeWrecks.
However, the situation is slightly complicated by the fact that the GOH's mom is footing some of the bill, and the GOH's grandfather is providing the venue. If Friend, the nominal hostess, wanted to spend a lot of Mom's money on decorations and favors that Mom knows her daughter won't like, I think Mom can say, "Actually, I would rather spend more money on making sure we have plenty of food and drink, and less on decorations." Of course that depends on the nature of their financial agreement--if Mom just gave Friend a set amount of cash, Mom has pretty much given up control of what Friend spends it on (as long as it's on the baby shower). But if they're still discussing the various aspects of the budget, I think Mom can say, "I want the money I give you to go for food [or other basic hospitality necessities]. If you want decorations and favors [which happen to be tacky and not to GOH's taste] you'll have to pay for those yourself." In other words, I think Mom may have some legitimate control over the theme, because it's her money that's paying for it (all or part).
Likewise, it's Grandfather's house, so Grandfather definitely has some say over things like decorations and food--no silly string (too messy), nothing that requires being taped or thumbtacked to anything, maybe provide real glasses and plates in the hopes of minimizing spills, etc.. Or whatever. And it may turn out that these perfectly reasonable restrictions, also happen to eliminate some aspects of the party that GOH would have found especially tacky.
It sounds like the OP doesn't really have any standing to make suggestions directly to Friend, but she could certainly advise Mom and Grandfather on what they could say to Friend. Basically, don't make it about the theme being "awful." Rather, try to exercise some other reasonable powers, about practicality or hospitality, that also happen to restrain Friend's plans. Some things might slip through, of course, and GOH probably won't be surprised by them. But, if Mom doesn't want to pay for tons of cheap favors, or Grandfather doesn't want to risk his furniture being damaged by silly string, certainly something can be said about that, I think.