I love the generosity and practicality of Nicki O's advice. As a granny myself, my heart would break if I were cut out of my grandson's life – I love him as much as I Ioved my own daughter. And I can sure hear how challenging it would be to have someone trying to teach you how to mother her way – I would hate that, too. I used to tolerate this sort of emotional bullying from others until I would just burst with resentment, and the results were seldom pretty.
So I hope you'll try polite but extremely clear honesty. There's a simple, 3-part response I've learned for those times when I MUST be clear and firm for the sake of my sanity: In a relaxed and friendly voice, acknowledge the other's request; use the magic word "AND" (this makes a transition without implying that their request has no value), then give your answer or reply simply and unapologetically.
This might sound like: "Jane, I hear that you believe I should be more stern with my son. I understand that you mean well, AND, no, I am mothering the way that works well for me."
Or, "Jane, I hear that you'd love to spend time visiting here. I love it that you want to maintain a strong connection with Billy. AND, no, having you stay with us will not work for me." (You could add, "You are welcome to take a hotel room for a few days, and I'll arrange [specific times] for you to see Billy.")
If she's going on and on coaching you on how to mother, interrupt as soon as you can with something like, "Jane, you've given me this advice several times before. I appreciate that you want the best for your grandson. AND I do, too. I am providing him with good mothering. So please keep your advice to yourself unless I ask. Now, would you like to hear what Billy did this morning?"
Don't explain, make excuses, sound apologetic, or say anything that will leave you sounding less than clear, or the other person will use that perceived weakness to start talking you out of your decision.
There is actually a politeness and a freshness to this simple honesty that most people will honor, and even eventually come to appreciate.