Apologies in advance, I haven't read every reply but I had an idea about this one. Make her this offer:
1. Tell her that you understand that having a new grandchild is 24/7 and that she's overwhelmed.
2. Offer to pay her a self-care rate of $100/mo. You do all the feeding and cleaning yourself, and she can rest assured that it's taken care of. You're just paying for the space, not the care.
3. If someone is making money teaching on your horse, then rent them your horse - and charge them 50% of their lesson rate. If they charge $45/hr for a group lesson, charge them $22.50. You keep your horse tuned up periodically, and your horse gets experience carrying children around which will increase his value.
4. Check out the website wyominghorses.com. They lease horses all over the country and their feeding and care contract is excellent. Get a contract written up like this and make these instructors that are using your horse sign it. Stipulating among other things that for instance, if any saddle sores appear on your horse there's a $500 fee attached. This will help protect your horse's welfare and prevent him being over-used.
5. If they say no, then just say that it's not working out for you and move out. You don't have to give all the reasons why and it's probably better not to unless pressed for it. I only say that because I've seen other people leave barns after registering a lot of complaints about the care, and after they're gone they're sh*t-talked mercilessly. Which isn't the end of the world, but isn't it better to just not?