Hi Cheri-
Your issue is one that I'm anticipating for my own family in another few years, so it struck close to home. My family doesn't have a history of hunting and my husband's has a very enthusiastic hunting background. I know it can be a pretty charged issue, whether and when to take a child hunting.
I think that all of your concerns are really valid ones, and they would be (WILL be!) mine as well. Particularly having a child witness not just the shooting of a deer, but the field dressing that follows. I agree that it would be really traumatic.
Those concerns aside, my thought is that from a practical perspective, a 5 year old doesn't really have the patience or the self-discipline to do all of the quiet sitting that's involved in deer hunting. I don't know a whole lot about deer hunting, but I do know it involves long hours of quiet sitting (oftentimes in the cold). Not the strong suit of most children in that age range. With that in mind, I would think that it would just be too soon for your son to go with his grandfather on a deer hunting trip.
It's nice that your father wants to share something that's important to him with your son, especially since your son loves spending time with him. It just seems like it's too soon. Does you dad do anything like scouting his deer lease prior to the actual hunting trip? If so, maybe your son could do that part with him? That way they get some quality time doing something that's important to your father, but your son doesn't do the actual hunting trip. And they could do it before the hunting season actually starts, so you would be less worried about cross fire from other hunters and other similar safety concerns. That would also be a chance to be moving around, talking, et cetera, which seems like it would by much more up a 5-year old's alley, so to speak. I don't know if that's a practical option, but thought I'd toss it out there as an idea.
Hope that this helps a little- and I wish you luck with your decision!!
M.