I don't know... I am torn on this one.

On one hand I can see that it is a very beautiful gesture but on the other I can see that having your DH's grandmother holding a little bubba named Jennifer could be a little distressing for her. I think it is definitely something you would have to discuss with those closest to your DH's grandmother and eventually with the grandmother herself.
I know for me, I would love for one of my grand kids or great grand kids to have Noah as a middle name for their child, but actually naming their child Noah would be another thing... it would take a lot of strength to be able to bond to a related child with the same name. That's just my opinion though.