I might even go one further and encourage your daughter to ask Grandpa for an apology. As much as you want to get in there and smack his head off, it seems this is really between him and her and she seems to understand that it's not her fault...so? I don't know. I might let her handle it. I think this might disarm him, and let him know unequivocally that she is a human being with rights and feelings. Maybe she could write it in a letter to him. She could state very clearly "Grandpa, I was very scared and lonely and sad and woke you up because I needed a grown up's help and you hit me for waking you up. You owe me an apology."
I only suggest this because my son and I got in a fight a few months ago, and I was dead set that I had every right to be the boss and put my foot down, and I was being really pig-headed, and I sent him to his room and while in his room he wrote me a letter (albeit in 5 year old spelling and giant letters) and he said, essentially "Mommy your yelling hurt my heart, please stop being angry and listen to me."
I mean how can you really not respond openly to that?!
If he doesn't respond to her direct request, I would encourage her to keep her distance from him, and frankly, anyone who makes excuses for him.
I think this particular issue should be dealt with by adults, since Grandpa seems out of sorts.