Runners on first and second with 0 outs. Batted ball hits runner on second base while he is still on the base. Ball rolls directly to ss. Ump calls dead ball and awards all runners one base including the batter who is put on first. What is the correct call? I cannot believe that he got this correct.

44. RUNNER HIT BY A FAIR BATTED BALL.
A. While in Contact With the Base. A runner who is hit by a fair batted ball
while in contact with the base should not be called out unless the act is
intentional. The ball remains live, or becomes immediately dead, depending
on the closest defensive player. When the closest defensive player
is in front of the base that the runner is in contact with, the ball remains
live. However, when the closest defensive player is behind the base, the
ball is dead. Should the ball be ruled dead and the batter awarded a
base hit, only runners forced to advance because the batter was placed
on first base shall advance one base.

So playing a 5 man is a disadvantage in this situation if the runner chooses to stay or is to slow to react and gets hit runners can advance 1 base instead of a possible easy out or DP, then it becomes a judgement call by the officail according to 44.

Grandpa is correct as well as the umpire in the original post, providing the shortstop is deeper than the projected base path from 2nd to 3rd. SSUSA Rule 8.2.C.1

As to a 5 or 4 man infield, this is mute point and no advantage or disadvantage on number of infielders, seldom if ever will the infielders be playing inside the projected base paths. Also, extremely unlikely for a runner to be hit with a grounder or line drive while standing on second base, but when this oddity does occur, there is a rule in place to cover. The rule as written favors neither the offense or defense.