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My late mother didn't mind her name much, but really despised most if not all the nn forms. It was her own mother's mn, but she never gave a thought to using it for me. After hear death I used it for my daughter, and never hesitated. She would have been surprised, but would have respected our choice.

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I suppose that if there's a chance that the original owner might object, one could make it a mn and therefore less obvious. Or tweak it a bit, like using Margot instead of Margaret or Rory instead of Roderick. But it would be a courtesy to ... not ask exactly, but state your intention.

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I think your grandfather had two good names, and the confusion was none of his doing; can't imagine why there'd be a problem.