Cinders, What your h and the ow are doing is wrong. You have every right to be upset by the suggestion of calling the ow's parents "grandparents". It sounds to me that the ow wants to seal the deal, lock, stock and barrel, and ensure that your h and your children understand that she's got him and now he and the children are now a part of her life and her parents. Not happening. I agree with the others....time to sit your h down over a nice cup of tea and explaint he facts of life to him. "Grandparents" title is for those parents that gave birth to their children, i.e., you and your h. Other people who come into the picture, i.e., step or otherwise, shall be called a different name.
Quite frankly, I think your h is trying too hard to please this girl and by allowing this to continue, tells me he is desperate to keep her. First the photos and now this. Sounds to me like the girl wants to take over every part of your life and to be honest with you, she can never replace you. You are a very unique lady who has a lot of class and will shine no matter what.
I think if you sit him down and have a nice chat about it, maybe, just maybe, he'll understand. I wish you the best on this one.
Sit quietly, the answers will reveal themselves when you least expect them to. The past is gone, the present is a gift and you need to focus on today, allow the future to reveal itself when it is ready.