I must warn you my response will fair on the bias side because I have a grandmother similar to this so you can take my advice with a grain of salt.
That being said, I agree with the other ladies that she may not be as naive as she leads on and if she is maybe it's time for your DH to shed a little light.
I had a similar situation when I was having issues with my father.
My grandmother would meddle and try to guilt me into talking to him or try to get me to see his side. I would politely tell her that it was between him and I and when it's time for us to sort it out we will deal with it accordingly.
*Note my grandmother had heart issues, kidney issue, gallbladder
removed, ulcers and is always in pain and on numerous medications*
This was never enough for her and she would always push and one day she pushed me too far. I told her that I loved her dearly but she needed to back off because this issue wasn't hers to fix. She told me that I was being unreasonable and then I unleashed (no yelling, I actually didn't even raise my voice I spoke very mater of fact) I told her all of my reasons for being upset. The things that were said to me, that were said about me, that hurt me, frustrated me and ultimately pissed me off about the situation.
The entire time she too would try to interject, I wouldn't let her and I kept speaking. At the end of my rant I told her "and this is why I won't be attending any events or speaking to him anytime soon. It is my decision and mine alone. If it bothers you that's something you will have to come to terms with. I'm allowed to feel the way I feel and deal with it how I wish to deal with it."
Well that was that. She was speechless. I mean no sound on the phone, couldn't hear a darn thing speechless. My grandmother has always had a response to everything and I had rendered her speechless.
Finally when it either all soaked in or she realized I stopped speaking she said that she's sorry I feel that way and that she had no idea I was dealing with all that. Whether this is true or she was just flabbergasted is beyond me and truthfully I don't care but I informed her and left it at that.
She has tried to get involved and push me everyone in awhile to test my boundaries and I just tell her that I love her but this doesn't concern her and doesn't affect our relationship.
With all of her health concerns that didn't kill her so I'm sure if your DH just speaks up and is honest with her she will either understand, leave it alone or continue to pretend it's not real. Either way your DH has to stay true to himself and his family. He's going to end up upsetting someone but you have to remember you can't please everyone.