We took DS on a Princess cruise for his 1st birthday, on a
Disney cruise for his 2nd birthday, and then a surprise Disney cruise when he was 2.5. We took him to Disney World just before his 3rd birthday.
I am so happy that we chose a cruise for the 1st & 2nd birthdays. It was so convenient having the room be less than 5 minutes away, having all of our food taken care of (including room service), and being able to come and go for activities as we wanted. He was so happy just walking around the ship, looking at things and doing the small activities that it was a great break for us.
The cruise when he was 2.5 was harder. He wanted to do more of the big kid activities, but he wasn't old enough. He was just barely potty trained, so he could swim (or use the splash area) but he wasn't mature enough to stay in the kid's clubs and would have been bored in the nursery. He would get upset that he couldn't stay in the clubs whenever he wanted and he just in general wanted to go, go, go and there wasn't always enough to keep him entertained. We did not sit down to a meal as a family for the week because one parent had to walk DS around to look at things while the other ate and then we would switch. That was a pretty miserable vacation. I actually think that he would have been much happier at that stage going to WDW, although I am not sure he would have understood why we were standing in line.
By this last vacation (just before his 3rd birthday) he had a wonderful time at WDW. He was fine standing in lines and enjoyed many of the rides/attractions. He was able to get out more energy and we all enjoyed that. I don't think that he is mature enough to stay in the kid's clubs on a cruise still (he has never gone to daycare or been cared for by anyone other than mom, dad, grandma) and because of this I think that he would have still been a bit bored on a cruise.
Our vacation plans are to go to WDW just before he turns 4 and then take another Disney cruise just before he turns 5 as by then I think he will be old enough to enjoy more of the activities & clubs which will mean that he enjoys the cruise more and that DH & I get a break.
So much of what is better will depend upon everyone's likes and dislikes. I love cruising. I wouldn't have wanted to take a 1 yo to WDW so I would suggest the cruise, but many people will take a 1yo to WDW and say that it is great. It is so hard because at this age they change so quickly on some things and slowly on others. One thing I can say is that a cruise is a much more relaxing vacation than WDW and that may be something that the parent's may appreciate after having just passed through the newborn and infancy period of your grandson's life. Either way I am sure you will have a wonderful time.
Here is a link to the trip report from our first Disney cruise to give you a better idea of what is available for the young toddler crowd:
http://www.disboards.com/showthread.php?t=3048475
