First, I love that you want to honor your grandmothers. Fewer and fewer people seem to be honoring family members with baby names nowadays, which I feel is too bad, as it's such a cool thing to do.
Two thoughts I had while reading:
-I don't think Matthew and Margaret are too close, personally. I could see those M's getting in the way if there were ever a third child (would you have to continue the pattern?) but, otherwise, I think the right nickname could mask the closeness. Matthew will probably turn into Matt, and Margaret could become Meg, Maggie, Gretchen, Greta, Peggy, Marge, Mae...any of a number of things. Matt and Meg sound similar, but Matt and Gretchen aren't much alike.
-I really like Robin's idea of Lucille as a first name. The name fits with your style, and it meaningfully connects the baby to *both* grandmothers, while honoring neither over the other. Quite a diplomatic solution, I think.
Here are some other name ideas:Valerie
(Verna + Marie)Euphemia
(U-sound from Gertrude + M's of Marie Minchella)Henrietta
(as an extension of Henn)Marcella
(Marie + Minchella)Margot
(Marie + Gertrude)Gabriella
(Gertrude + Minchella)