What a shame. But, life is too short and you need to be as honest with your little one as she can understand. Does she even realize it yet? If she doesn't, then let it be until she does notice. This is such a loss on the grandmother's part, what a sin and a shame. You know what they say, you can pick your friends, and you can pick your friend's nose, but you can't pick your family. Just do the best you can, and feel sorry for this woman and pray for her. She needs it desperately. But, don't cow down to her either. You deserve more respect than that, and it will be up to you to make sure SHE knows it. I think its great that you and your DH can make it work regardless. My MIL, who has now passed on, was very unfair to our kids also, she loved them but the other daughters kids and the older son's boys ruled and we all knew it. We just laughed it off and said they needed it worse than we all did. Our kids never really held it againest her, just tried to understand that it was just the way it was. Good luck and pray that the hand of God will reach down and grab ahold of her shoulder (Hard!) and make her see the error of her ways.