Yeah, honestly, I think it's a little weird for a toddler to like nail polish.
That said, a few weeks ago by son caught me putting toenail polish on. He was fascinated and begged me for days to put toenail polish on him.
So, I finally agreed to do it, but only on his littlest toe, thinking, who's gonna notice that? He's four. His littlest toenail is so small still, it is seriously like maybe less than an 1/8 inch wide.
But, by husband somehow saw it (it was only one toenail!) and got into this thing about this being wrong, how we don't want to "encourage" him, the whole gay thing. I looked at him like he was crazy. He told me to remove it. I said I would, but I never did. My son picked off the color himself.
Weeks later, again, my son noticed I had changed my toenail color. He begged me to paint his one baby toenail. So, I did, and while I was in the middle of doing in, his dad walked in. It was all sorts of awkward -- me, with toenail polish and a blank stare, my son's cute little foot in my lap, and my son with a huge grin from ear to ear.
So, whatever. I mean, I think it is sort of weird for my kid to be so fascinated with polish, but look, he also makes fart sounds all day and thinks that's hilarious, especially when he sees how much it annoys me. He also likes to talk about throw-up more times than I would like. He's a kid, and kids are into weird things. And that is that.
As for grandpa, he clearly still thinks that homosexuality can be cultivated with a little polish. It's just ignorance. But you are certainly justified to be pissed off at him -- he is being rude and implying you are a bad parent (you aren't of course). Tell him Rock Hudson probably never polished his toenails, and dude was gay. Real gay. Or, maybe offer to do him a clear coat or two, just for fun.