If this neighbor is a "very good friend" it's doable with a gentle, well-thought lengthy conversation.
First, is the daughter's drunk/drug neglect of this child common knowledge or was that conveyed to you by the deceased wife?
Either way, I'd first steer the conversation from sympathy to the loss of his wife and its effects on his life; then to his wife's influences on their daughter & granddaughter (here's a good time to introduce the daughter's drink/drug abuse/neglect if deceased wife shared it with you); finally, I'd commiserate of the challenges raising an opposite sexed, generational-gapped grandchild "at our age". (I include myself on that one!

)
Offer a sleep-over, preferably when YOUR granddaughter is around. Have a girly grooming night. Introduce deodorant, etc., along with fragrant soaps, washes, lotions and bubbles. Play with styling hair. Make it fun, instead of a lecture.
Note: Trust me, I'm the LAST person to encourage "girly" stuff, appearances or vanity as an end to all means.

But it appears this youngster could USE some guidance.
Good luck!