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This is a "Wild Mass Guess" entry, where we pull out all the sanity stops on theorizing. The regular entry on this topic is elsewhere. Please see this programme note.
Troll 2
Grandpa Seth is actually Seth, Egyptian god of the desert.
This explains why he can freeze time and summon lightening, why dust clouds form at his seance and why he is disdainful of his daughter's choice in a spouse (because he is a mortal).

Grandpa Seth is actually Satan. Nilbog is Eden.
Supposedly, he has a "kingdom of shadows", and has friends who are in Hell, yet he himself claims not be in Hell, and the fact he can instantiate on Earth at will implies this is true. Combined with his role tempting Joshua to commit more and horrific acts (first, lying to stop the holiday, then urinating on the food, then firebombing the house), it's obvious that he is the tempter.
  • Further, Nilbog is entirely vegetarian. At various points throughout the film, the mother - representing Eve - is tempted by a bowl of red apples, which eventually spell her fate when eaten. Note also that it is always her offering the dangerous food to her family, claiming it is safe, paralleling the story of Eden.

Grandpa Seth is the evil troll from the original movie
His ghost just assumed the form of an old man.
  • Makes sense that he would try to stop them. How can he convert humans into fantasy creatures if they all become goblin food?
  • I knew there was some connection between Troll and Troll 2. Now try to connect the other movies to each other.
    • Easy, the trees with the killer roots are actually victims of the Nilbog transformation. The radioactivity allow them to return to sentience and made them kinda ticked off.

Grandpa Seth is Joshua from the future.
During Timeline A, Joshua grew up never encountering goblins. What we see is Timeline B. Joshua found out about the goblins tampering with history and somehow sent his own psychic projection back to warn himself.

Nilbog was converted from a normal town into a goblin village by the troll from the first movie.
Just as he did to the apartment building in the first movie, the troll turned a small town into a fantasy land.

The goblins turn people into plants to circumvent a curse on themselves.
Goblins are frequently defined as a subset of The Fair Folk (and their ability to disguise themselves as humans in this film lends credence to the association). It's possible that they were tricked or forced into making an oath en masse to abstain from eating flesh, possibly by someone trying to protect humans from the goblins' man-eating appetites. So by turning people into plants, they bend the rules without breaking them.

Grandpa Seth is actually Stand - The World (aka ZA WARUDO)
That's how he stopped time! One has to wonder though, what intrest can Dio have in stopping goblins?

The goblins make Soylent Green
The plants which the goblins turn people into are processed into the foodstuff we all know and love. They're both green and they're both people.

Troll 2 is in fact the film adaptation of a Garth Marenghi novel
With a film filled with so much Narm and Special Effects Failures, I'm surprised Dr. Rick Dagless, M.D. wasn't on hand to take on the goblins. Unless Grandpa Seth is Dr. Dagless.

Elliot and his friends are all bisexual and in a polyamorous relationship...
...and the reason Mr. Waits disapproves of him is because he doesn't approve of his lifestyle. It's not a problem with him having "friends," it's a problem with his daughter living a life of sin. He's fine with Elliot on his own as a person, but will never accept him and his orientation. It explains the bizarre dislike of Elliot having friends, everyone sleeping together in the RV, and all of them looking for girls to pick up.

Grandpa Seth served in World War II alongside someone who could Shock and Awe .
Grandpa Seth's lightning abilities are never explained fully, we are just told he obtained them from a friend in Hell. Except he may not have meant literal Hell, he may have been referring to a horrible time and place in his life. The preacher commanding him to "Return to the kingdom of shadows" could just be chalked up to Bad Is Good and Good Is Bad .
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