Hi S.,
My husband and I decided to give our sons their grandfathers' names as middle names (Thomas and Daniel, respectively). This worked out well for us.
Be careful, though, of soliciting too much family input on this. My experience with naming children taught me that names are best announced on the birth announcement because, according to my family, it was up to them to name my babies. I was told that my chosen names (William Thomas and Christopher Daniel) were too boring, too long, too old fashioned, too much like British royalty, too many nicknames, too everything! The low point was with my second son when my gram weighed in and decreed that Christopher should have my grandfather's name as his SECOND middle name. I agreed, but only because she's my beloved Gram. My grandfather hated the name (Michael) so much that he legally changed his name the day he turned 18. So, Christopher Daniel became Christopher Daniel Michael.
Beware of acronyms. In 1994, when William Thomas F. was born, the acronym WTF was unknown. Now, as a sophomore in high school in 2009, it's his nickname! [eyes rolling]
And if anyone gets to bold in trying to name your child, tell them to get a puppy so they have something of their own to name and take care of. That quip stopped many in my family dead in their tracks when they crossed the "let's name the baby" line.
Best of luck to you.