I'm going to withhold judgement on that until all the facts come out. I agree with you that he had a basic moral obligation to protect those children-not just because he was the grandfather, but because I strongly feel that EVERY adult has a basic moral obligation to protect ANY child they know or suspect is in harms way.
That said, I would take into consideration the fact that Blake was under CPS supervision at the time-a fact that grandpa was likely aware of. He may have just assumed the situation was taken care of, and that necessary steps were already being taken to ensure his grandsons safety.
Furthermore, Jenna seems like the kind of petty, vindictive person who wouldn't think twice about cutting off access to the little boy to anyone who dared to cross her. I've been in this situation before and it is a very delicate balance. In my experience, CPS does not act on vague suspicion alone-there has to be some kind of concrete evidence for them to take a report seriously. Given that the grandparents lived thousands of miles apart and likely had little face-to-face contact, they probably didn't have much to go on beyond gut instinct that something was seriously amiss. And even if you make a report anonymously, based on the information shared (which often does get disclosed to the parents) the identity of the reporting party is usually pretty obvious. So if no protective action is taken, the end result is often the child losing another lifeline, and thus becoming vulnerable to even more severe abuse and mistreatment because there is one less person around to keep a watchful eye on them.
The way I read JMF's comments is "You're not fooling me, Jenna, and I'm keeping eyes on you and that little boy". Which may have been the only thing he felt he could do in that situation.