Homer, I understand where you are coming from, but don't assume that tax credits and 529 withdrawals follow the same rules. I am not saying they don't, and I am not an accountant, but your assumption may not be sound--especially if Pub 970 is vague or silent about your situation regarding 529 withdrawals. So I would suggest you check with an accountant, or maybe our esteemed leader, Joe, has some insight on this.
One way for your scenario to work is for YOU to pay the college costs, reimburse yourself from the 529, and then let the grandparent gift you the money you paid to the school. That way, your qualified expenses and 529 distributions are in sync, and the 529 "police" (if there are any) shouldn't care about a private gift between family members that does not pass through a 529 account.