DP feels it's inappropriate for male relatives to kiss grandchildren (our kids are both girls, ages 1 and 5) on the lips. As a general rule of thumb, I would agree. If you asked me, "Should male relatives kiss girl children on the lips?" I would say no. However, I don't feel like it's a big deal for this one relative (he's the only one who does it) since it's just what he does, and I've seen him doing it all the time, everywhere, for 40 years.
This has come up recent because DD1 likes to kiss people on the lips (other grandparents who are caught off guard by this, babysitters, etc.), and we are working on helping her learn that she is only allowed to kiss her mother and sister on lips, not other people (DP would prefer not to have her kiss him on the lips).
My plan is to say to my dad, "We're trying to each DDs appropriate boundaries about kissing, so I'd like to ask you not to kiss our kids on the lips while she's learning about this." I think he would say OK, but that he'd have a hard time remembering since it's his habit, so I will need to mark my calendar to email him a reminder before we see him. (We live 4+ hours away so we only see him about 2x a year.)
Once DD has internalized the "regular" rules about kissing, I'm inclined to let it go. I think enforcing the, "You can kiss me and my sister and everyone else but don't kiss my kids" rule would take a LOT of reminding (every time we see him, for all the years to come), and he would feel hurt, as if I were accusing him of sexually abusing his grandchildren. I can live with all that -- it just feels like a lot of work to me. So I'm inclined to let it go and let the kids learn that Grand-Pop is a little wacky in his affection, the same as the rest of the family has learned.
DP feels that it's a double standard to teach our daughters not to kiss people on the lips, but not to expect the same of my dad in terms of his granddaughters.
We could use some outside perspective!
Here's a different perspective. My paternal grandfather was a lip kisser for everyone. It was very much just who he was, and part of his culture. If you said "goodbye" to grandpa, you got a kiss. I was fully able to understand that that was his way of being. I did not attempt to kiss other people on the lips, because my mother's rule of never kissing on the lips superseded everyone except my grandpa. (maybe grandma, too. I don't remember. She died when I was younger and my memories are foggier.) How he said goodbye (the kiss, and three squeeze hug) are some of the most vivid memories I keep of an old man I miss.
Other cultures handle greetings and departures differently. If you believe that his behavior is just a part of his being, and not icky, why not make it so that's just how grandpa says goodbye, and it's grandpa's privilege. If she (your child) doesn't like it, it could be she that speaks up. As for your husband, if these are your parents, and you grew up this way, it might be right to encourage him to see the different perspective, and remind him not to sweat the small stuff. A grandparent lip smooch, without any other issues, is not inappropriate. To say otherwise is looking for trouble where there is none. to tell your father that he shouldn't kiss your children on the lips ever again is to assume that the kissing is inappropriate and unacceptable. The statement is loaded with judgement that I don't believe grandpa deserves, assuming the situation is as you describe.