So, I haven't read every post all that closely, but here's my
I an agnostic, but my mom's family is Lutheran. My Great Grandfather was a founding minister in the Lutheran church in the homesteading states, and we traveled on a train when I was young halfway across the country so we could visit. While there, I was baptized (or so I'm told). I am also told that some of the words spoken, were that the nature of my beliefs as an adult did not matter as much as if I turned out to be a good person. My mother is clearly devout, but made sure I was aware of this.
Nobody in my family has asked that I get my kids baptized, so I'm not sure how I'd feel in your shoes, but the harm of the act itself is minimal and I look back at mine as a positive thing (though I was a baby so I really don't remember it). I would never take a religious role in a baptism and promise to do things I would never do, but as long as that is understood I would probably be OK with a baptism for tradition's sake. Not wanting your religion to be put "on the back burner" is a valid concern, but unless she'd also protesting your pagan traditions I don't feel like that's what is going on. Wanting her grandchild to be included in her beliefs might not even strike her as something that is perceived as exclusionary or disrespectful to your beliefs.
I'm pretty open to my kids experiencing the traditions of our family even if they have religious overtones though, and my child will take part in the Jewish traditions of my step-family, the Christian traditions of my mom's family, and the secular or other religious traditions as we see fit. A Baptism isn't like a secret enslavement that attaches your child to the church for the rest of their life...plenty of people switch sects or religions after a baptism.
In the end it's all about what works for you guys though, and choosing to go along with it or not is only up to you and your husband. I just wanted to offer my own perspective since I'm a little more relaxed about these types of things.