Not that my opinion matters one whit, but for the record, SlackerInc., you and your wife did just fine. I wouldn’t ask anyone else to distribute gifts equally but grandma - and thus - great grandma - should absolutely have to. There are differences/degrees in relationships, you know. And no one asked her to give more - just the same amount, better divided.
Great grandma is the one who is making all of the divisions in her family and driving these other children away. And she is also the one that issued the ultimatum.
Oops, sorry. Evidently I misread. Cue Emily Litella quote here.
First, kudos to your wife; she sounds like a great step-mom.
To answer your question in general, there’s really no right or wrong answer because it depends so much on the family dynamics. When children are concerned I’m all for everyone being treated equal and think it’s great when extended family swoop in and “adopt” the step kids as if they were their own nieces, nephews, grandkids, etc. That said, there are a million other factors that can impact the extended family relationships, such as the stability of the parent/step-parent relationship, the age of the kids, etc. For example, if dad and step-mom are on-again-off-again then you can see how it might lead exteneded family to invest less in building a relationship with the step-kids. It doesn’t sound like this is the case with you, but I think it’s a good example of how one family might be super welcoming while another may not.
As for your situation, it sounds like GG had several years to develop a closer relationship with your kids and for whatever reason she didn’t. I’m not surprised that didn’t change just because your new kids came along. Sometime people (maybe moreso old people) are clueless about this stuff and other times they just don’t care. It sounds like you only see GG once a year and the lack of contact was likely a barrier to developing a closer relationship as well.
Given what you’ve described I think the letter to great grandma was a mistake. If anything, it’s an issue that should have been addressed as soon as your first child together was born, maybe even before. Not even gifts specifically, but how your kids relate to their step-family. Despite it being your wife’s grandma, it sounds like this was essentially a distant relative and I don’t think I’d expect much from relatives I only see once a year. The fact that your kids haven’t even noticed this seems even more reason to just let it go and have a “life isn’t fair” discussion when the time comes. This is all moot now of course and it sounds like your wife felt strongly enough to bring it up so good on her. My wife and I have a very close relationship with her grandparents so my perspective is probably biased more towards keeping the peace, but I also don’t think they would have responded in the way that your wife’s grandma did.