This is all totally dependent on your family structure and how your in-laws would all feel being in one villa together and with you all and a baby. IMO a two bed DVC villa isn't big enough for 6 adults and a baby. Also, would the grandparents be ok in one villa together? Just my own experience through travels with our own kids and one set of grandparents, but adults who are not used to being with a small child all the time and other adults that they're not really related to, or currently live with, may just need a break from one another and a DVC 2 bedroom isn't that much space for 6 adults.
If it's my family and 2 sets of grandparents, nobody is staying together like that in one 2 bedroom villa. There may be ample sleeping arrangements but not enough personal space. For us, it would be same resort and that's where the togetherness would end, everyone would have their own space. Now if it was only one set of grandparents, I would consider a villa and would likely prefer staying at the same resort if we did separate rooms.
If you want to go down the villa road, Beach/Yacht club is nice for the awesome pool area and walking proximity to Epcot/DHS. But if you'll be at MK more and strollering alot, maybe consider GF or BLT villa.
If you decide to go offsite, you'll definitely get more bang for your buck. There are some nice nearby properties with great pools and amenities. And of course, you could go full throttle and rent a condo or house and have a ton more space but I am not a fan of cooking while at WDW so I don't ever bother with that at Disney.
As far as the trip length/tips- totally depends on what you want to accomplish, time away from home, budget, health of grandparents, etc. Not sure of their health but walking around at WDW is a lot even for the fittest of people so I'd say a trip no longer than a 4/5 days to a week max. Over the years, we traveled a lot with my husband's mom/dad, shared hotel rooms, had the benefit of them watching our kids while we'd go out but the key takeaways are that spending time with a small child more often than normal for them can be taxing so they may need breaks from ya'll, they may need to not go to the parks at all and do their own thing, they may be slower paced than you and you may be bothered by that. Or they also may want to do the polar opposite of all that and be with ya'll 24/7 and that may drive you nuts. LOL!
I don't know your relationships and how often they're all together, but just know that there are a ton of variables here that make planning trips like this a little more complicated. When our kids were little, we basically told the grands, join us if you want, don't feel obligated to do anything you don't want to but here's our plans. We were flexible, they were flexible and it all just worked.