Her grandson (considering he is deserving of it!) :D could use it as an Ipod, you can buy very cheap portable speakers now that can perform very well as your own jukebox and also he can just plug in a pair of headphones if he wants to take it somewhere with him.
There is no setup of the phone without a sim card you just leave it out and the phone will start normally, just navigate to the music player, plug it into your speaker and away you go.
There would also be access to youtube and a whole host of interesting projects and things he can do, like this website :)
It can also be used as an emergency phone but without a sim it will only call 999/112/911 depending on your country. Also it will never be charged when you actually need it :(