The language she uses may not be normal. She had to hear things like that somewhere, but the crush on her pawpaw is normal. Most children go through a phase where they have a kind of "crush" on the parent that is the opposite gender to them I could see where that would be the same concept as having a crush on a grandparent. The possessiveness is also normal. My niece would do that to my boyfriends. My concern would be where she is getting the ideas of wanting him so see her naked from. She could also be doing this just to get a rise out of you because she doesn't like another girl being in her pawpaws life.
What does she see at home? Is her mother behaving in overtly sexual ways?
There was this little girl in my son's 4 year old preschool class whose mother was all over boyfriends - she had a succession of several, and she behaved very sexual toward them and had volatile relationships.
So one day my son (who she had chosen as her "boyfriend") accepted an after preschool playdate with another little girl, and this little girl put her hands on her hips and said "well YOU *******" to my deer-in-the-headlights son.
Amazing. That girl had seen THAT before, for sure!
So I guess I'm asking, how does her mother behave around men? It may be that's all this girl has ever seen.
Sounds pretty scary, all right. What do her parents say about this?