I never really liked the idea of digital picture frames. At first they were overpriced and very poor picture quality. Now they are getting better with higher resolution, more options for getting photos to them (SD card slot, USB, Wifi), but there is still a problem with them. They are single purpose devices, and Grandma doesn't want to fidget with loading images.
Along comes the AppleTV (Gen 2) from Apple for $99. A black hockey puck with one HDMI cable, power cable, and very simple remote. Now here is a perfect replacement for digital picture frames. I have a MobileMe account where I keep all of my photo albums up to date. Now Grandma can flip on her AppleTV and view all the new photo albums I put onto MobileMe with no work on her part. The slideshow viewer is absolutely gorgeous, and quite configurable. Now Grandma can view the photos on her TV in a much larger format instead of a dinky digital picture frame, and I manage the albums.
Not only is the AppleTV a good slideshow viewer, but you can watch Netflix, rent movies and tv shows, use airplay to push content to the TV from another iOS device, and you know an app store is in the works... but the picture viewer alone is worth the price to purchase for Grandma.
Although MobileMe is $99 bucks a year, it's well worth it for the automated syncing of addresses, bookmarks, passwords, etc. between all your Mac devices. And of course, simple management of shared photo/video galleries for the family.
So if you plan on getting a digital picture frame for a gift, spend the dollars on an AppleTV instead. It's a much better investment.