You have made the wisest choice. The grandparents misguided loyalty is baffling!
Or maybe not so baffling: it's possible the mom is extremely active in influencing them. And that their views of you, your SD, and husband are provided to them by the alcoholic mom.
She may build up their hopes that she is recovering, convincing them that she is the only "true" mother, that blood is thicker than water and she must be in their lives. (and close to their wallets). Or she is working the pity angle and convincing them that her severe problems drive her to drink and she needs their support. And money too. She might be creating the image of herself as a the victim in their eyes, and once again, make them more malleable to supporting her economically.
Of course the mom is going to do everything in her power to stay close to an easy source of money. The mom could easily be the source of the remark that it is the SD who made her drink. Totally predictable, totally typical and not surprising behavior at all for someone in advanced, untreated addiction.