Yes, she's 100% in the right with this and asserting her "dominance" or "authority" as a parent over the grandparents.

However...

Your #'s 1. Yep 2. Yes, but if a parent thinks they prevent the hearing of a word or words, they're wrong. In a class, it just takes one to be that kid who teaches all the rest of the kids these words. A parent can lessen it, but not prevent it. 3. Well.... invalidating her opinions, views and authority, but saying that rage is called for is extreme, to be honest. 4. Here, I disagree. Every kid NEEDS to get into trouble, ESPECIALLY from others that aren't their parents. This is how they learn the difference between right and wrong to a much greater degree. Overly strict parents teach kids that there two (or more) sets of rules for kids, and eventually the kids can learn to ignore the ones from their parents (when not with them, but at school, with friends, etc.).

Parenting is a tight rope walk, but isn't overly difficult, IMO, having done it already. The (overly simplified) trick is to get the kids to be self-policing by teaching them all sides of the right and wrong issues, including the whys - and get them to not want to do something wrong.