this may or may not work, but here is what I thought of trying. Go get a fake mustache or beard, whatever is closest to her grandpa. Since Halloween costumes are already out, you should be able to find one. If not, get felt and cut it to the size and shape. Then "play" dress up with it. Put it on your face (you'll have to find something tacky to hold it on or a way to loop it over ears), have her daddy and your daughter . Have her look in the mirror. Show her pictures of granpa's beard too. Then talk about it A LOT! Talk about that grandpa's isn' t for play, it is real. That it is hair growing on his face like hair grows on her head. That underneath grandpas facial hair, his face looks like your faces when you take off your "fake" beard. Be sure to emphasize that since grandpa's isn't for dress up that he can't just pull it off like the play beard and pulling on it hurts just like pulling on hair hurts.
She may spend the whole week trying to pull off his beard, who knows. I guess if she does that, maybe she won't be scared of him at least. I don't really know if this will work. Kids at this age are sometimes afraid of things that are kind of funny to us. My almost 19 month old is afraid & at the same time strangely fascinated with electronic plush toys that sing and some part of them also moves! Good luck.
Ps. You may also be able to find a children's book at the library about beards, to read to her. Ask the children's librarian & be sure to tell her your daughter's age so she can get an age appropriate book, if it exists!
Edited**Well I just read that someone else already recommended the fake beard idea. I guess great minds think alike, spooky!