It's pretty common to use an older deceased relative's first name as a middle name for a child in tribute and people commonly accept that as well intentioned.

However I'm not aware of any cultural acceptance for copying a whole name when a baby dies. They should think of their own name and not put you through this.

1 losing an older relative doesn't compare with losing a child.

2 the name combination OP gave her baby is obviously great and super rare. Just because they're too dumb to think of something unique and special doesn't mean it's ok to steal the name thought up by a mother who lost her baby

3 asking the grandmother of the baby doesn't make it ok. It's still stealing if they didn't get the parents permission and unless you're close to the parents why would you even think to ask to use the name? Did they think you wouldn't find out or do they care more about how a name sounds than all it means to you?

Basically OP if you're reading this I think you're completely justified in being pissed off. Your DH is their blood relative, can't he talk to them about it. You're not alone in this and if they can't respect your feelings they don't deserve to be in your life or your children's lives