I'm one of the people at my work that is "Beta Testing" Office 2007, and I use it extensively as part of my job. Theres a few factors to take into making your decision:
1) Office 2007 is chunky. That is, load times are longer, its a bit 'bulky', so if he has an old computer it might run slow. My work computer is a P4 2.8 GHZ with 1gb RAM, and it runs fine, though opening large files takes about 5-10 seconds in Excel, and sometimes it crashes all together.
2) The layout is a big departure from how office 2000 and office 2003 look. Does your grandpa like big changes and will he want to learn an interface that looks different then office 2003 and 2000?
3) What aspects of office does he use? Excel, Word, Powerpoint? My experience with office 2007 is if you do alot of stuff with formulas, charts, graphs (i.e. Excel stuff) then the 2007 version is alot better. If hes not using Excel, I'd probably go with 2003 or stick with what hes got.
4) I haven't seen the compatability issues mentioned above. I make reports in 2007 and email them to my boss who is still using 2003, and they work fine. You just have to make sure to do "Save As.." and pick the right format.
So, without knowing what he'll be using it for, thats the best I can tell ya about Office 2007.