My Mother (90) is obsessed with our 18 month grand daughter.

You are right to be worried. Shaking the baby must not be allowed to happen so make sure she is not able to get to the baby she could kill her. Either grandma or the baby has to move out of the house. This is child abuse not only would grandma be in trouble but also everyone else in the house who is aware this is happening.
As for Grandma sneaking out of the house put locks on the inside of the door, that she can't open, a digital lock comes to mind that she does not know the combination to.
The medications need to be taken out of her control and if possible find a way of giving them to her. if she can't be controlled at home she should be placed into some sort of facility.
I am sorry if this sounds harsh but the baby is at risk and so is grandma. Don't tell me "But she loves the baby and would never hurt her. She loves her" of course she does and she would not do anything intentionally but she clearly has some dementia problems diagnosed or not, and does not know what she is doing all the time.

Crush the medications and put them in pudding or applesauce. Or get liquid

And for the record, it's no longer safe for grandma to be at home.

I mentioned this a while back but it's worth repeating here. I had a friend growing up who came from a large family, all living at home, ages from about 20 to an infant under the age of one. Plus "quirky", "funny", "odd" grandma at home as well. Everyone made light of grandmas dementia - never, ever referring to it as dementia for that matter. Then one day someone caught grandma feeding the infant sliced, raw carrots. Thank goodness nothing happened to the baby - grandma was caught in the nic of time - however grandma was moved to a environment that was better suited to everyone's needs after this little incident.

"Never Shake A Baby." Shaken baby or shaken impact syndrome is a great deal of suffering for all involved and a lifetime of regret. All contact with GM and baby must be supervised. I wish this were easier. If she never walks further than the court of where you live, maybe that is OK but there is always a first time to wander off further.

I wouldn't think that bringing a child into your bedroom would necessarily be an ideal situation, but if you could, perhaps you could then substitute a doll in the child's bedroom. The real child absolutely should not be shaken. I agree that you could be liable for child abuse by allowing this to happen.

Also, is she an insomniac? Is there some reason why she's up and about at night?

You might ask her doctors if she could take melatonin; it's a natural hormone produced less by the elderly, but induces sleep, safely in my experience. There's none of the after effect like some of the OTC sleep inducers.

Or feed her turkey at night; it contains tryptophan, which induces sleep. Or maybe some herbal teas that are sleep inducers, but check with her doctors to ensure there are no interactions with any of her meds, even if she doesn't take them. Perhaps if you could find a way to sneak her prescribed meds into her evening meal, and any of them are sleep inducers, that might cut the evening wanderings.

Since your mother is blind, do you think she would be able to tell the difference between the real child and a well manufactured, soft doll that can also emit sounds?