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We also used a trading system when my kids were younger. My older son would have a toy in his hand and take it to his little brother who had the toy he wanted, then he'd 'trade'. It stopped a lot of fights and crying as my younger son rarely got upset if he had a different toy to grab his attention.
With these girls age difference I agree that I'd have the older one keep her special things put away and played with seperately. And not everything can be special. We pass on baby toys from one child to the next even though my older son got them.
The problem is, it doesn't sound like your thinking is what the girls parents think. And they are the ones that will make the rules for them. Often times this is sad but true. If they seek advice, give it to them. Otherwise, as grandparents, you have to tread a little lighter. You could broach the subject with your son and see where you get. But try the special things idea at your place and trading as well. Your granddaughter then might be able to do this at home without a big issue of grandparents vs parents. Good luck!!