I'm just reading all of this now, and wanted to chime in on the "narcissist" characteristic you mentioned. That may actually be a nugget of truth.
If the grandfather truly is a narcissist, then standing up to him is something that would have triggered him (this is not your fault, this is his deal). Narcissistic people are famous for their inability to take any perceived criticism, and subsequently their ability to manipulate people around them to isolate the person who criticized them. They launch smear campaigns against their target person. They target the victim (you) and get others against you. (I have personal experience dealing with a very cunning narc).
I'm wondering if the grandfather has scared and manipulated your friend into breaking contact with you by intimidating him and launching a smear campaign against you. A narc is so good at this, even people who know them well can fall victim to their lies, and believe their manipulation. Your friend may be a pawn in his grandfathers schemes without even knowing it.