Hi, I'd like to help you with your question.
It sounds like Bill may have a personality disorder. Personality disorders are not a major disorder like Manic Depression is. Rather, they are a secondary disorder that affects a persons ability to relate to others in a normal way. Often, a person with a personality disorder will cause major disruptions in family situations with their many needs and attention seeking. A person with a personality disorder often lacks insight, which is why it is difficult to treat with therapy.
It is good that you are there to support your daughter. She needs someone she can come to to help her. But at this point, unless her husband is willing to see his behavior as a problem, he is not going to get better. So your daughter needs to make a choice about what she wants for her future.
Does your daughter feel that being together as a family is benefiting her daughter? If so, then her reasons for staying are understandable, though it is harmful for her. But if she feels her daughter is worse off, then leaving may be the best option.
Has your daughter considered therapy for herself? I understand that she has little time. But maybe she can talk to a therapist a few times or even her pastor, if she attends church. This will help her gets perspective.
If you can convince her, try to see if she will move back out again. Tell her to give it a try for a month. Her daughter may be better off being in a stable home with you and your husband. Also, hearing her father talk about illnesses on a daily basis is not good for her mental health. She may develop fears around her own health. Also, her ability to choose a partner as an adult can be affected by the type of parenting she receives from her father. So moving out may also be a better choice for your granddaughter as well. You may also want to suggest therapy for your granddaughter as well.
This is not a healthy situation for anyone. Hopefully, your daughter will choose to at least take a break, if not for her own sake, for her daughters.
I hope this helps,