I am sorry to hear about all the difficulties in your family — for your daughter and her younger child, as well as for you and the grandson you are raising.
When you state that the local authority are trying to bring you and your grandson into the proceedings, do you mean that they are actually applying for a Care Order for him? Is it the grandson you are caring for that you meant when you wrote: "Social Services have put my grandson on the CPR. Then taken him off it and now say he is under and ICO pending proceedings and a finding of fact hearing about her allegations." If it is the grandson you are raising, it is an extremely serious step if he is under and ICO, and you should arrange legal representation right away. The local authority should have sent you a letter stating there were to be proceedings, which you could take to a solicitor, and which would entitle you to legal aid. It would be very important to select a solicitor who was on the Law Society's children's panel, showing that they specialise in this area of law - you can find out who there is locally to do this by going to the Law Society website: http://www.lawsociety.org.uk
You state that there were historical child protection concerns, which were the reasons you left your daughter's partner. If the local authority were involved in investigating these, it could be worth asking to see the files that were made at the time, as it sounds as if your ex is now trying to re-write history. You could make a freedom of information request to see your files, and if they support your version of events you should ensure that they get presented as evidence in court. Incidentally, the files that you get to see would probably have third-party information removed, as you would have the right to see what the local authority had stated, but not necessarily what others had stated. If you want to make a FOI request to see your files, you can read how to go about this in our Advice Sheet 26.
The position the social workers will now be in, with regard to your daughter's allegations about you, will be that they have competing versions of events, and they will have to carry out an assessment to decide which version is more plausible. Even if your daughter retracts, they will still have to look into, as they might think that she told the truth and then withdrew because of pressure from you. While the social workers are investigating, and assessments are being carried out, my advice would be to be as open and co-operative as possible. Once this process is underway, it is not going to go away. The best way for you to show that your grandson is not at risk is work together with them and allow them to see this for themselves.
You can read our Advice Sheets 15 (Care Proceedings) and 26 (Access to records) here: http://www.frg.org.uk/need-help-or-advice/advice-sheets
Finally, as I stated yesterday, if you have used your real name as your username I would strongly recommend that you change it, or write to the adminsitrator of the board to ask for it to be changed. It does mean that you and hence the children involved could be identified, and if the court found out that the case was being discussed in a public forum they would take a dim view of it.