No you are not!
My mum had her grandchildren overnight from a few months old - the first one at 6 weeks old, while my sister in law was in hospital - but she had spent time with all of them from when they were tiny.
The fact that your DS has hardly seen her for months , along with the problem with the dog, to me, means that you are being wise not to allow him to stay.
Regardless, she needs to train her dog not to snap and if that isn't possible, the dog should be put in separate room when you visit (which may well make that problem worse).
You have given her the option of her taking him out for the day or on little outings for an afternoon but she doesn't want that.
Your child, your choice. She has to accept that rather than try to bully you into doing her choice. Stick to your guns and I'm just waiting for the post saying " My DiL will not let my GS stay with me AIBU " !