i had a go at this also. the first thing i did was to increase the image size by 300%. this will give you smoother lines and transitions. if you're short on computer memory, you may not be able to do 300% but try to increase it if you can.
one way to even up the skin tones is with the airbrush tool in
psp. make a new layer above your current one. just a blank layer. take your eyedropper tool and pick a surrounding color that you want to paint with. select your airbrush tool and set it to a very light opacity, like 1 or 2, 3 at the most. set hardness to 60. set step to 5. set density to 50 to 60. thickness to 100. rotation to 0. blend mode to normal.
now just paint over those areas you want to correct. if you get too strong a line of paint, lower the opacity another step. and if you still cant get a light enough line, then dont hold down the mouse while you paint; just dab it on one click at a time.
when you have something fairly close to what you want, go to blur, gausian blur and set this to about 2 to 8. have your preview on image turned on so you can see the full results. when it looks ok, hit ok.
just keep repeating this entire procedure to clean up those areas you want to clean up. and keep adding new blank layers each time that you paint into. this is a bit slow but shld give you some nice results with practice. it's not the only thing i did here, but it's the main thing i did here.
i also used the red eye removal tool to fix the redeye and changed the background to something darker for a bit more contrast. i also added a brightness/contrast adjustment layer to lighten things up a bit and give a bit more contrast overall.
and tell your grandma she's a lovely woman