Since it is the parent paying for the haircut, it is their judgement call. Why they would want to use their kids hair to live out their own little unexpressed rebellion fantasies, I'll never know! If they think it is so fun, why don't they get their own hair cut in mohawks and leave the kids hair alone! That's what I would tell them if I was the grandparent and I was asked. I might possibly even chime in my opinion if I wasn't asked, but only once, and then I would shut up.
What is the most disturbing thing in this scenario, is grandparents who would shun their own very young grandchildren because their silly parents gave them a bad haircut! I see the JW mentality is still alive and well in some people even after they have left the organization. Actually, I don't even know many active JW's who would shun their own grandchildren for having a bad haircut! That is just over the top. What sort of emotional damage is that going to do to a young child's psyche? Grandma cares more about what your hair looks like than she does about spending time with you or seeing you! Maybe they would be better off not coming over if that's your attitude.
ps: edited to add, I love Skully's idea if it is the kids themselves who want the crazy hair, compromise and let them have a mohawk wig for crazy hair day at school or summer parties or halloween. Or let them dress up all summer in crazy, wash out haircolors. A parent can do this and still be responsible and send a message that when you are engaged in general public activities, like school, formal outings and events, etc, you do your hair in a socially acceptable way. This is only respectful. When they are teenagers and they get their own money or shave their own head in a mohawk, I think it is best to ignore because they are doing it for shock value. I'm sure it takes half the fun out of it for them, if everyone just yawns and gives them no attention whatsoever! No reason to keep it going then, is there?
pss: When my son was 14 he came home from school with his head shaved completely like a skinhead! I was soooo proooud! Why, you may ask? Because his whole cooking class of guys did it in support of a female teacher who also shaved her head to raise money for breast cancer research foundation! It's all in the context. Teenagers can be awesome!