If your son has been used to calling this person Gran , then please think very carefully about telling him not to do so in the future.This will involve him in the disagreement and make him aware that he is not in the same position as the other children.I know you are very upset by the events which have unfolded, but please try very hard not to involve your son.Let him carry on with the name Gran if he wants to do so,to re-inforce for him that he is part of the family as a whole.I realise that the issue has, rightly, made you hurt and angry, but there may well come a time when he chooses not to call her Gran.
He is very young to fully understand the workings of people in a family unit, so although it goes against the grain with you at the moment , you may be wise for his sake to let things ride , and let him address her in the way he is used to,if he so wishes.The very best of luck.